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Homeowners get some breathing room

A foreclosure sign

TEXT OF STORY

Tess Vigeland: Fannie Mae and Freddie Mac delivered an early holiday gift to some troubled homeowners. The two mortgage finance giants, which are currently under government control, announced they're suspending all evictions until January 9.

Foreclosures spiked 25 percent in October over the same time last year, while more are no doubt on the way. Some lenders are trying to modify loans to keep people in their homes.

As we continue our coverage of the fallout from the financial crisis, Jess Mador reports from Minnesota Public Radio on some of those efforts.


Jess Mador: Janice Davis still gets emotional when she remembers the day she got the letter telling her [that] her mortgage payment would go down.

Janice Davis: I opened it and I started screaming. My interest rate went down to 5.25, and I just started screaming.

Like many homeowners over the past few years, Davis refinanced her South Minneapolis home with an adjustable rate mortgage. From the start, it had a high interest rate that she couldn't afford. She says she knew it was risky but she didn't really understand how risky.

Davis: The interest rate, the principal, all this stuff and you know nothing about it. You don't go to nobody's office, you don't have a lawyer. They come to your house and they say, oh, they have to get to the next appointment and they say, 'Oh, we'll just sign them and then I'll explain them all to you.' By then, you already forgot the questions you were going to ask.

To add to the confusion, her mortgage broker promised she'd be able to lower her payments in the future by simply refinancing again. As the interest rate went up and up, Davis, who works as a baggage handler at Northwest Airlines, quickly fell behind. And she couldn't get a new loan. Eventually, she went into foreclosure. For a year her lender, Countrywide, repeatedly denied requests for a modification. Then this past July, To Davis' amazement, Countrywide dropped her interest rate from 10 percent, down to five and a quarter percent. That lowered her monthly payment by $400. And the best part? It's a fixed rate.

Davis: They can never touch it again. Nothing can move! Twenty years from now, I'll still be paying this same price.

Stories like Davis' are happening nationwide. There were 79,000 loan modifications in August, triple what it was last year. That's because home foreclosures are expensive for everyone involved. Each default costs lenders an estimated $40,000, plus the additional cost of putting the house back on the market. Rick Simon from Bank of America says the lender started taking a different approach to foreclosures about a year ago, shortly before it bought Countrywide.

Rick Simon: If we can anticipate that we are going to have these increases in foreclosure rates, the thinking now is more and more, why don't you take some of that cost and move it forward and put it toward home retention.

Simon says Bank of America has modified four times as many loans as it did last year. And the banking industry as a whole is more willing to lower principal and interest rates for borrowers. In the past, that was rare because a strong housing market made it easy for homeowners to refinance or sell. That was before credit tightened and home values plummeted. Joe Ohayon from Wells Fargo Home Mortgage says it's true: lenders are more willing to give modifications. But he says every struggling homeowner won't qualify.

Joe Ohayon: It's really based off the borrowers' ability to pay. We want to make sure we put them into a payment that is affordable and sustainable. We don't want to have a re-default in the following cycle.

He says, even in this foreclosure crisis, lenders have to meet standards that also serve the goals of their investors. Looking back, homeowner Janice Davis says she shouldn't have accepted an adjustable rate mortgage on the house she's lived in for 14 years. But now that her interest rate is fixed at a level she can afford, Davis says her struggle was worth it.

Davis: It feels good now to be able to pay your mortgage.

But Davis is one of the lucky ones. A record number of homeowners are behind on their mortgage payments, and more than 4 million Americans are expected to foreclose over the next two years.

In Minneapolis, I'm Jess Mador for Marketplace Money.

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I am horrified to hear that we as a nation are never going to learn our lesson. My husband and I have made many sacrifices, scrimped and saved in order to come up with 20% down on ridiculous home prices, delaying our home purchase and doing "the responsible thing"; we even did the research and determined that no matter that it was tempting, we would never put ourselves into an ARM mortgage. And now to hear that someone who didn't bother to learn about the terms and conditions of her mortgage gets an interest rate that we couldn't hope to get? I mean, it's great for her, but what about responsible people like us? How is this fair?

I am in the same situation as that laddy, but my lender wells fargo want to make my mortgage fixe at 10 percent, what can i do?

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