June 08: Tough calls

June 08: Tough calls

For situations like the current credit crisis, there are always two stories. You’ve got your long story of the economic drivers and credit-market discombobulations, one that recently took NPR’s “This American Life” an entire hour to explain.

Then there’s the short story: I’ve got a mortgage that—very soon—I will be unable to afford.

People who find themselves in that very position probably have heard a lot of talk about loan modifications, negotiating with lenders to adjust the terms of mortgages that have become (or will soon become) too expensive to pay. In theory, lenders are supposed to work with you to modify the loan so that you’re able to make payments and still have enough money for fun things like food and $4-a-gallon gas.

Phil d’Oronzio of Pilot Mortgage says that, anecdotally, he has seen more people in the Charlottesville area asking about loan modifications. He’s also watched the mainstream media prop up its talking points that urge troubled homeowners to call their mortgage company as soon as they think they might be in trouble. His faith in that, let’s say, is less that absolute.

“I’ve really seen that turned into a tale told by an idiot full of sound and fury signifying nothing,” he says. “One of the difficulties of loan modifications is that you get on the phone to this behemoth and you can’t get anywhere.”

Remember the long story, the one that took NPR financial reporters an hour to unpack? Well, that is a tale of loans sold, then chopped up, then repackaged, then sold again. The end result was good for investors—at least for a little while. But for homeowners, it means that now it’s a large pain in the ass, if not impossible, to figure out who actually services the loans.

One of the requirements of getting a loan modification is finding someone, an actual human being, to approve it. And with some loans owned by an unknown entity, or even by a number of different entities, many of them staffed by remote customer service representatives, “you’ve got a dearth of people with the proper experience and who are within the corporate structure that will allow you to pass down the judgment to these people,” says d’Oronzio.

So what to do if you’re faced with a mortgage that is becoming financially overwhelming? You call the lender first. See if you can modify the loan. But don’t expect a quick and easy solution. In fact, you’re better off praying for a miracle.

“Negotiating in those circumstances is pretty tough,” d’Oronzio admits. “Even seasoned professionals who know the lingo and every trick in the book have a hard time getting it done.”

If you can’t get your loan modified to where you can make the monthly payments, the second step is to call other lenders about refinancing your loan. Do it before you’re in default, or else you won’t have a chance. The credit markets are so tight that banks and lenders look at every potential loan like a chipmunk eyeing an approaching dog. Is this going to eat me?

If you don’t have any luck with those two options, there is a third call you’ll need to make. But it won’t be pretty. The call is to a Realtor, to see how much money you’re out if you’re forced to sell.

The golden rule here, though, is this: Don’t wait for foreclosure. Once you’re that far behind, your options blink out like—forgive me, Sir Elton—a candle in a windstorm.