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Behind on Payments? It's Time to Call Lender


WASHINGTON — For 37 years, Bill Kress successfully ran the seafood business he started after returning home from the Korean War. Then the Bayville, N.J., resident began to have problems.

First, a business expansion didn't go as planned and a construction loan went into foreclosure. Next, his wife Maryanne suffered a stroke. And then Bill had an operation that ultimately forced him to go on disability.

Living on Medicare, home-heating grants and other assistance programs, Kress tried to increase his cash flow by refinancing the mortgage on the house the couple inherited from Maryanne's mother. But because of the earlier foreclosure, he was turned down.

Fortunately, Kress' lender, the Ulster Savings Bank in Kingston, N.Y., suggested that he seek to have the terms of the loan modified as a special hardship case. He did, and the rest, as they say, is history.

"They were terrific," Kress says of the loan workout specialists at Freddie Mac, the government-chartered secondary-market firm that controlled his mortgage. "They didn't fool around or hesitate."

Freddie Mac agreed to rewrite the loan, reducing the monthly payment by more than $140. And because the new payment covers several tax and insurance bills Kress was paying separately, he figures he's saving more than $300 a month.

"Without Freddie Mac's help, we would never have been able to make it," he said. "We were down to the part where we were scratching our heads about what we were going to do next. Now we can put some food on the table."

Bill and Maryanne Kress remain homeowners today because they contacted their lender as soon as they realized they were in over their heads. Most folks aren't as candid. Instead, they bury their heads in the sand, hoping their lenders won't realize they're "only" one or two payments behind and praying they'll be able to catch up before the lender knocks on the door.

That strategy usually doesn't work. More and more lenders use computer programs to quickly identify borrowers most likely to go into default, so collectors can concentrate their efforts on them.

Lenders also are moving to foreclosure much more quickly. At Freddie Mac, which has a portfolio of 8 million loans, the time between the first late payment and taking back a property has been cut by 60 days since the big secondary mortgage-market firm decided a couple of years ago to pursue costly delinquencies more diligently.

Another point: The more payments you miss, the more difficult it is to catch up.


Homeowners who are behind in their mortgages usually are late paying other bills too. Consequently, most are often so overwhelmed by calls from creditors that they refuse to answer the phone or return messages. And as a result, many are eventually sucked under.

But it doesn't have to be that way, not if you call your lender at the first sign of trouble. More than ever, lenders are bending over backward to keep people in their homes.

"Lenders are very concerned with portfolio run-off, so they're working very hard to retain borrowers," says Phil Comeau, vice president of nonperforming loans at Freddie Mac. "They'd rather keep borrowers than lose them."

The reason, of course, is money. A foreclosure is a financial disaster for lenders as well as for borrowers. Freddie Mac has one of the highest recovery rates in the business, according to Comeau, but it still loses an average of $18,000 on every foreclosure. If the company can manage to keep nonpayers in their homes until they can get back on their feet, though, it can cut its losses to only about $5,000 per case.

Lenders won't be able to work with everybody. There's nothing they can do for people who are habitually late, for example. Deadbeats need not apply, either. So if you can pay but won't, don't bother.

But if you are a "deserving borrower," your lender may be able to help you over the hump. Deserving borrowers are those who are cooperative and make their payments regularly and on time. They can be people who, through no fault of their own, have lost all or part of their incomes because of, among other things, serious illness, short-term disability, death in the family, divorce, unemployment or a mandatory pay reduction.

You may also be considered deserving if you've experienced an unavoidable increase in expenses because of an illness, damage to the property or an unanticipated maintenance problem that, if not corrected, could affect the value of your house.

If you fit into any of these categories, your lender has a number of options available. You may be allowed to:

* Catch up on missed payments by resuming your regular payments plus an additional agreed-upon amount until you are current.

* Reduce or even suspend your payments for a specific period, usually no longer than 18 months. After that, you'll have to begin making regular payments again as well as an additional amount toward the delinquency at scheduled intervals.

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