Mortgage companies seek to assist troubled clients with modified loans

(AP) – As home foreclosures mount, mortgage companies are knocking on doors, sending letters and making phone calls with a simple message for struggling homeowners: They’d rather modify your loan than foreclose.EMC Mortgage Corp., specialist with a $78 billion portfolio of subprime loans – for homeowners with weak credit – this week launched a 50-person team it calls “the Mod Squad.” Members will spend an unlimited time on the phone with troubled borrowers, sifting through their bills to compute a workable monthly payment. In an industry that often rewards workers for getting off the phone quickly, the team is preparing to speak to just three people a day.”You can’t just run this like a call center; it needs to be run like a counseling center,” said John Vella, president and CEO of EMC. Right now, $2.14 billion in mortgages, 2.74 percent of EMC’s portfolio, is in default, up from 1.93 percent a year ago.Not everyone in the business was sympathetic to EMC’s new kinder-and-gentler lending practices.”The president of EMC is smart to change his pitch,” said Stephanie Sullivan-McCaughey, founder of American Trust Mortgage Co. with offices in Lynn, Swampscott and Boston. “Two of the oldest suburban mortgage companies, New Century and South Star Funding, closed their doors this week. They’re out of business. So you can image the woeful impact of what’s going on. Lots of people have lost their jobs.”Sullivan-McCaughey explained that her company is healthy because it was always focused on people rather than profit.”We’re doing well and we will continue to do well. Our focus is on people and doing right by the individuals, whereas these big companies have been all abut the dollar,” she said, adding that the loans made are difficult to sell. “Nobody wants to buy them.”The change of strategy has been forced on the lenders who profited by selling subprime mortgages. “Of course companies like EMC have to change their tune if they want to survive. Hey, why didn’t they think about that early on? Now suddenly they want to be everybody’s buddy,” Sullivan-McCaughey said. “They’re smart to try and salvage their portfolio. Otherwise, they’re just going to blow up like the others. It’s happening mostly in Lynn and Lawrence, in Haverhill and Seabrook, places where people never thought they could afford a home. They were sold a home with an adjustable rate, which got them into the house, but now the rate is adjusting and they can’t make the payments. They can’t afford to stay. These mortgage companies knew this would happen, they just didn’t tell their clients.”Lenders have long modified loans for homeowners facing job loss, illness, divorce or a death in the family. But with many borrowers across the country struggling to keep up with mortgage payments, mortgage companies increasingly are prodding anyone who’s having trouble making payments for any reason to give them a call.Critics say lenders made loans to borrowers who weren’t creditworthy with terms that would be impossible for them to meet. Whether the current wave of workouts will merely postpone foreclosures – and delay bad loans hitting lenders’ books – is an open question.Regulators will be watching to see how many are successful, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business.The scant public information on modifications makes evaluation tricky, said Thomas Lawler. The former chief economist at Fannie Mae now runs his own consulting business, Lawler Economic & Housing Consulting, in Vienna, Va.Loose lending standards followed by lax modifications can merely delay a problem, Lawler said. He pointed to the raft of modifications done in the manufactured housing business in the mid 1990’s, when easy credit led to a wave of defaults and repossessions.”If people had known what the servicers were doing, red flags would have been raised; but by the time people knew what was going on, it was too late,” he said.Advocates say