With large numbers of homeowners falling behind on mortgage payments, lenders across the country are seeking creative ways to keep delinquent customers out of foreclosure.
One of the newest approaches: the "Mod Squad," a roving 50-person team of problem-solvers who work for Texas-based EMC Mortgage Corp., a subsidiary of Wall Street investment bank Bear Stearns. EMC services about 500,000 loans nationwide, with $78 billion in outstanding balances.
Named after a hit TV series from the late 1960s and early 1970s, the Mod Squad consists of experts in loan modifications - custom-crafted solutions for borrowers who no longer can afford their mortgages at current rates and terms. The object is to search for changes in the loan requirements that will permit the borrowers to remain in their houses, pay down their loans and avoid foreclosure.
"Foreclosing doesn't benefit anyone - not the borrower, not the lender, not the bond holder," EMC President and Chief Executive Officer John Vella said in an interview. On the other hand, recasting certain terms of the mortgage - lowering monthly payments for a period, deferring unpaid principal and interest, or changing the rate - may allow delinquent borrowers to get past whatever financial issues caused them to fall behind.
What's unusual about the Mod Squad is that rather than waiting for homeowners to contact EMC when they get in a jam, the team is proactively reaching out to individual borrowers, working with local consumer and credit counseling organizations, and holding loan modification educational meetings for borrowers in cities where delinquencies are rising.
Loan modification represents just one approach that mortgage servicers can use to stem the tide of foreclosures.
Other techniques include:
Repayment plans where unpaid balances are reduced over time through small, regular add-ons to borrowers' monthly payments.
Forbearance agreements whereby principal and interest payments are reduced or suspended for a period of time, enabling the borrowers to get their finances under control. Then the regular payments resume, along with gradual reimbursements of balances in arrears.
Remedies such as these are more commonly available than many credit-strapped homeowners may be aware. In fact, major mortgage institutions such as Freddie Mac, Fannie Mae and the Federal Housing Administration require loan servicing companies to offer one or more plans to delinquent customers who have a reasonable chance of avoiding foreclosure.
