Homeowners Facing Foreclosure Are Getting Mortgage Workouts
Thursday, December 13, 2007SUSIE GHARIB: In Washington today, lawmakers are finalizing a bill to give the Federal Housing Administration a larger role in working out mortgages heading for foreclosure. Mortgage workouts are seen as a key to helping millions of homeowners facing rising interest rates on sub-prime loans. Stephanie Dhue profiles one struggling borrower, whose mortgage rate resets higher tomorrow.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Keion Reynolds thought he was buying a slice of the American dream when he purchased his condo two years ago. With real estate prices rising, he figured it would be easy to refinance well before the interest rate on his sub-prime loan adjusted higher.
KEION REYNOLDS, SUB-PRIME BORROWER: As soon as I settled in, the market stagnated and then subsequently from that point forward, it dropped. So my hopes were crushed.
DHUE: Anticipating the interest rate hike would make his payments unaffordable, Reynolds sought help from several loan officers in his area. But with a prepayment penalty and falling prices on comparable homes -- comps, as they're known in the industry -- he was stuck.
REYNOLDS: They've called, like, month after month, hey, we can get it done, I've got a comp in your area. And it turns out that that comp is just kind of some falsely reported data and so it just leaves you just sunk in and sour.
DHUE: Reynolds turned to the Neighborhood Assistance Corporation of America for help. The non-profit advocacy group has a $10 billion commitment from Bank of America and Citigroup to refinance troubled loans. The group is working to buy out Reynolds' loan and refinance him into a 30- year fixed rate mortgage.
REYNOLDS: The key is that it would be fixed, I don't have to worry about anything adjusting within six months and I'll be paying toward the principle. So I mean that just is the key. I just wanted to get into a loan that would allow me to do those things.
DHUE: Millions of homeowners will soon have trouble with their mortgages. Moody's analyst Mark Zandi says the sheer number of expected foreclosures will swamp current programs aimed at dealing with the problem. He says policy makers should consider setting up a government fund similar to the resolution trust corporation established to deal with the 1980s savings and loan crisis.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: If the problems in the mortgage market intensify and foreclosures surge and cause house prices to fall sharply, the economic expansion is at risk. So there's no reason for that. The government could step in, buy financing, resources and forestall a potential economic downturn. So in a sense, it is a bailout, but we're bailing ourselves out.
DHUE: But others like John Berlau at the Competitive Enterprise Institute say the government shouldn't bail out bad choices by transferring risk to taxpayers.
JOHN BERLAU, DIRECTOR, COMPETITIVE ENTERPRISE INSTITUTE: The lenders who made these loans should be the ones and the investors should be the ones on the hook; they took the risk.
DHUE: Reynolds is hopeful his sub-prime mortgage nightmare is coming to an end and that other homeowners in trouble will be able to find a way out.
REYNOLDS: I would just hate for someone to be in the same situation that I was in. I would hate for someone to experience that. They say experience is the best teacher, but not necessarily when you have to go through this kind of process.
DHUE: Economists predict prices will fall through next year and it will be 2009 before home prices stabilize. Reynolds expects to wait 10 years to reach break even with his home. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Manassas, Virginia.
