COLUMN: Borrowers in trouble should be upfront with lender

A couple of weeks ago, the Wall Street Journal online edition carried a story about loan modification programs helping homeowners soften the blow of an economic slowdown. Such "workouts" as they are called are mutual arrangements between the borrower and lender to avoid foreclosure by extending the loan term, accruing additional interest or reducing the interest rate.

While I hadn't heard of any such program going on in Las Vegas, I thought it might be of interest to borrowers who may be struggling to make their payments to know about such programs.

I've called lenders throughout the valley and it seems as though foreclosure is not a problem in Las Vegas.

Jeff Crampton, an officer with Republic Mortgage, said the company is pretty much working as usual, with repossessions of about 2 1/2 percent to 3 percent. The national average is 4 percent to 5 percent, according to Crampton.

He attributes the low rate to the robust Las Vegas housing market.

"If the homeowner is having a problem meeting the mortgage here, he only has to sell it," Crampton said. "It's tough not to sell a home out here -- you're not sitting on a home nobody wants. Here, you can sell and walk away with equity."

Jim DeBoth of Interest.com, which supplies loan data for this real estate section as well as others nationwide, referred to workout arrangements as "interesting."

"There's good and bad to it, as well as a huge chance for abuses," DeBoth said. "Of course, this program would only benefit one lender, and that's the one servicing the borrower's loan -- they're the ones that will lose if you default on your loan."

DeBoth said under this "workout" program, owners could stay in their home for a longer period, but will lose much of their equity and may eventually be in the same situation.

"If the depressed condition is only temporary, this is a viable but costly option. If they do not find work shortly, then they could pay severely with additional fees and a loss of great amount of equity and still have to move."

DeBoth said their only other real option would be to sell the house.

"The immediate advantage (to workout programs) is you do not have to move, while the immediate disadvantage will be the cost," DeBoth said.

"Remember, this program is probably only viable with the lender that you are sending your current payments to today. ... Other lenders would not be interested in this program, so the consumer is at the mercy of what their current servicing lender wants to charge or will do for them."

Corie Craig of the local Fannie Mae office said there have been only 82 workouts in the Las Vegas area, about the same number as 2000.

Craig said these numbers may not reflect the recent turn of events.

"We may not see the results of the layoffs for another few months as far as loan modifications are concerned," she said.

Housing market expert Dennis Smith said because of low interest rates, this might be the time for someone who is struggling to make payments to think about refinancing before going into arrears.

Smith said most lenders offer no-cost refinancing packages that could be attractive to strapped homeowners.

Refinancing would mean extending the life of the mortgage, but it also would offer the homeowners a way to make lower payments and still keep their equity.

Homeowners who are struggling to make payments should consult with their mortgage holders.

Lenders don't want to foreclose on homes -- they want those steady payments. Usually, something can be worked out.

Carmel Hopkins, real estate product manager for the Las Vegas Review-Journal and Las Vegas Sun, can be reached at 380-4574. Her e-mail address is Carmel_Hopkins@ lasvegasnewspapers.com. Snail mail is P.O. Box 70, Las Vegas, NV 89125.

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