Borrowers seeking loan workouts need patience

It seems that mortgage servicers aren't satisfying anyone these days.

Homeowners get fed up when they try to work something out with their servicers, to no avail. Real estate agents complain that mortgage companies drag their heels on short sales. Regulators are restless about the lack of "meaningful improvement in foreclosure prevention outcomes."

If there's a lesson for foreclosure-avoiding consumers, it is this: Be patient, don't take mortgage servicers' actions personally and be ready to send paperwork multiple times.

Mortgage servicers are the companies that collect borrowers' monthly payments and distribute the money to investors, tax districts, insurance companies and other entities that stake a claim to part of the homeowners' check. The servicer takes a cut, too. Because of the housing bust, servicers spend much of that money to hire and train employees to do loss mitigation: collecting late payments, negotiating workouts and processing foreclosures.

Word on the street is that servicers are doing a lousy job. The State Foreclosure Prevention Working Group, an assemblage of state regulators and attorneys general, has blasted the industry in a pair of reports published this year.

The group said 70 percent of seriously delinquent borrowers (those who were 60 or more days late) were "not on track for any loss mitigation outcome" in January. It had been the same percentage in October, even though servicers and the federal government made a big deal out of their joint foreclosure-prevention efforts in the intervening months.

The report defined "loss mitigation" differently than a servicer would. To the report authors and homeowners, loss mitigation consists of finding a way to keep the delinquent borrower in the home, either by negotiating a repayment plan or changing loan terms, such as the interest rate.

To a servicer, the phrase means mitigating the loss to the investor who owns the loan -- and if foreclosure is the least-expensive option, that's the one to choose.

Allen Butler, a real estate agent who works in the West Valley suburbs of Phoenix, is becoming an expert in short sales. A short sale happens when a lender agrees to let the owner sell the house for less than the loan balance, in lieu of foreclosure.

Butler is aware that a short sale takes plenty of paperwork and time. Short sales are for people who genuinely can't afford their loans anymore; they're not intended as a bailout for would-be sellers who can make the monthly payments, but owe more than their homes are worth. Lenders require a lot of documentation to distinguish between the two groups.

Knowing all this, Butler is still scandalized by Countrywide's delays in processing two short-sale proposals. In one case, it took the servicer 27 days to assign a negotiator to the file, and another month to send an appraiser.

The second short-sale case highlights Countrywide's "stunning incompetence," Butler says. "This is the one where they also switched negotiators in midstream and assigned me a newbie who apparently was fresh out of loss-mitigation school."

The newbie incorrectly told Butler that Countrywide did not own the loan, and later said the loan had mortgage insurance, when it didn't.

Countrywide says it no longer comments on its homeownership preservation efforts beyond news releases. One of the more recent releases says that Countrywide modified the mortgages of almost 10,000 customers in January, almost a tenfold increase over the previous January, and that it approved 2,000 other workout plans, such as long-term repayments.

"Greenpoint was particularly nasty to deal with," he says; in that case, the short sale was rejected on the mistaken assumption that Arizona is a recourse state. The house eventually was sold after foreclosure -- for $30,000 less than the prospective buyer had offered in the short sale.

As for companies that do a good job, Butler praises Aurora Loan Services, HSBC Mortgage Services and Wells Fargo. But impatient homeowners should note that those companies make short-sale decisions in about a month, which Butler deems reasonable.

Government officials, from the head of the FDIC to the state foreclosure working group, have been urging servicers to modify mortgages in bulk. But that's unlikely to happen. Delinquent loans will be worked out case by case -- and that takes time.Mortgage rates largely stayed put this week, with the notable exception of the one-year adjustable-rate mortgage. The average 30-year fixed-rate mortgage moved up a modest 5 basis points, to 6.16 percent. A basis point is one-hundredth of a percentage point.

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The average 15-year fixed -- a popular option for refinancing -- ticked up 1 basis point, to 5.71 percent. The average jumbo 30-year fixed also moved up 1 basis point, to 7.35 percent.

The one-year adjustable-rate mortgage surged 41 basis points, to 6.96 percent. On the other hand, the popular 5/1 ARM rose a more modest 4 basis points, to 5.96 percent.

(Distributed by Scripps Howard News Service. Reach Holden Lewis at editors(at)bankrate.com

(Distributed by Scripps Howard News Service. E-mail Holden Lewis at hlewis(at)bankrate.com)