Deal or no deal? Ask lender

WASHINGTON – As some troubled borrowers are simply handing the keys to their places over to their lenders and walking away, the vast majority desperately want to remain in their homes, even when they owe more than the homes are worth.

But in the face of interest-rate resets, how can they stay?

The stock answer is to call the lender – before falling behind in payments.

First, though, the borrower has some important homework to do, said Jon Daurio, chairman of Santa Ana-based Kondaur Capital Corp.

Daurio’s firm buys what are known as “scratch and dent” mortgages. These are nonperforming loans that others no longer want, “underwater” loans that Daurio’s firm turns back into performing assets, allowing borrowers to keep their homes. Kondaur Capital purchases these loans from lenders at from 75% to 80% of their face value.

Do the math

For you to get the same deal – to get your lender to write down the value of the loan by 20% to 25% – the lender must be shown that taking such a cut is the only logical choice.

You want to show that if you fail, the loan’s owner will be getting back a house that is worth less than it has invested in it.

Negotiating with the lender, however, is “an up-mountain battle,” Daurio said. “It’s not that it can’t be done, but the probability is very, very low.”

Still, it’s not as if you don’t have some leverage. The lender’s choice is to write down the loan for a borrower who’s already in the house and is ready, willing and able to make the payments, or foreclose, clean up the property to make it presentable and find a new buyer, all at a time when thousands of other sellers are trying to get rid of their own albatrosses.

To prepare yourself to negotiate, start by putting together a basic financial statement showing your assets and liabilities. On one side of the ledger, you’ll list income and savings; on the other side, car loans, credit-card accounts, food and clothing allowances, child care and other monthly expenses.

“It doesn’t have to be extensive or complex,” Daurio said.

The idea here is to show that while you can afford to cover your mortgage now, you won’t be able to do so when the payment goes up.

The next step is to show that your house isn’t worth what it once was. Usually, value is determined by previous sales of similar properties. But in a declining market, this information is unreliable, so you have to find a way to show that like properties are not fetching the kinds of prices they were a few months ago. Provide the names and phone numbers of the agents with whom you spoke so the lender can check too.

Find a decision maker

Now it’s time to make the call. Realize, though, that the person on the other end of the line is not likely to be employed by the company that originated your loan. Rather, he or she probably is working for a third-party servicer, a firm paid to administer mortgages.

Servicers are inadequately staffed to handle the current crush of defaults, Daurio said, and they are compensated on the amount of money they collect from borrowers. Consequently, he said, they are motivated to keep collections as high as possible.

With that in mind, you may be told to pay up or get out when you first call. But you’re likely to be hearing that from someone who has no authority to restructure the loan.

You want to speak to the workout department, not collections, and with someone empowered to make concessions, Daurio said, “someone who understands this is a problem loan that is not going to get better with neglect.”

Chances are your servicer is so overrun by the tidal wave of delinquencies that it will have little time for a borrower who’s still making on-time payments, even if you warn that your situation is about to change. If you find that to be the case, then you have to figure out how to get the servicer’s attention.

A word of warning, however: Some have suggested that, when all else fails, the best way for borrowers to be heard above the din is to stop making their payments. But it’s a step that could seriously affect your credit rating, and all but preclude your obtaining financing from another lender.

Lew Sichelman can be reached at lsichelman@aol.com.