Seeking a workout? Be patient
By Holden Lewis • Bankrate.com

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 most recent report compared what mortgage servicers did in January with what they had accomplished in October, and concluded that servicers merely had been running in place: "While the number of borrowers in loss mitigation has increased, it has been matched by an increasing level of delinquent loans," the report noted.

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.

What does loss mitigation mean?
The report defined "loss mitigation" differently than a servicer would. To the authors of the report (as well as to 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. Who knows what the report's loss-mitigation rate would be if it counted homeowners who are proceeding, uncontested, toward foreclosure?

The working group says servicers "are severely strained in managing current workload." It bases that conclusion "on anecdotal reports of lost paperwork and busy call centers."

One homeowner's experience with Countrywide
Larry White, a homeowner in Atlanta, knows about busy call centers and repeated requests for paperwork. He says he refinanced in 2004, getting an adjustable-rate mortgage with an initial rate lasting three years. That starting rate was 7.2 percent. Last year, it rose to 10 percent. In December, he looked four months down the road, to April, and didn't like what he saw: an upward rate adjustment that would make his monthly payment unaffordable. He says he was current on his payments.

He called Countrywide, which services the loan but did not originate it. He says he was asked to send some tax information and the reason for his hardship. "I said, 'I'm not in hardship now, but I will in April, because my rate will go up. It will readjust and be a hardship for me because it would be an $800 raise in my mortgage payment and I don't have that in my budget.'"

He says Countrywide told him to apply to have his ARM rate frozen for five years "or they would switch me over to a fixed, one way or another." He was told the process would take a month. Four weeks later, he called, and was told that his case was in the hands of a debt negotiator.