'Short Payoffs' Help Ohioans Keep Homes
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Some borrowers who want to modify their loans are being offered a surprising solution. Lenders are suggesting what some people call extreme short payoffs. From WCPN in Cleveland, Mhari Saito reports.
MHARI SAITO: Kimberly Gates sits in her small, fenced-in backyard because the inside of her two-story brick bungalow has been taken over by construction workers. That's because Gates says she didn't ask enough questions when she bought her Cleveland house in 2004. Later, she discovered the house had structural problems, that her adjustable rate mortgage was completely upside down, and that the title company owner who worked on her loan went to prison for fraud.
Things got worse when she temporarily lost her job as a home health aide. She fell behind on her mortgage, and the penalties and interest kept mounting.
Ms. KIMBERLY GATES: So the value of the house is $36,000, and the land is $14,000. And I'm owing almost $100,000 on the principal.
SAITO: The not-so-lucky servicer of this toxic asset was Florida-based Ocwen Financial Corporation. In late June, Ocwen charged off the loan. That means that the company took the write off, but Gates still owed the money.
Ms. GATES: So I called the mortgage company, and they told me that I can settle for my home. And I said, well, settle for how much? He said, well, you owe - between 90,000 to $100,000, so you can settle for $9,000. I said, oh, wow, okay, let me call you back.
SAITO: Gates then called her housing counselor at Cleveland's Community Housing Solutions. Andy Nikiforovs heads the non-profit, and says Ocwen ultimately agreed to take $6,000 to settle Gates' debt.
Mr. ANDY NIKIFOROVS (Housing Counselor, Community Housing Solutions): We have seen a number of cases now in the last month or two where lenders are, in fact, willing to write off a significant portion of the outstanding mortgage - some cases, 80 percent, some cases 90 percent.
SAITO: Gates got her payoff funds from a forgivable loan from the state of Ohio, and a low-interest loan from her county, Cuyahoga. Gates' mortgage is now $53 a month. Paul Bellamy heads the Cuyahoga County Foreclosure Prevention Program. He says the rescue fund was set up to help keep people in their homes with their original mortgage.
Mr. PAUL BELLAMY (Director, Cuyahoga County Foreclosure Prevention Program): Now people come to us and say we've got a servicer. If we can just get $3,000 together, they'll walk away from a five-figure debt and call it a day.
SAITO: Bellamy says the county has helped nearly a dozen of what he calls extreme short payoffs, loan servicers willing to cut this kind of deal, say, avoiding foreclosure costs is smart in tough real estate markets. A Cleveland State University study found that the median price of foreclosed houses in Gates' neighborhood is $8,000. Paul Koches is senior counsel at Ocwen Financial.
Mr. PAUL KOCHES (Senior Counsel, Ocwen Financial): To the extent we can cut a deal with a borrower on a short payoff, that, according to our calculations, would return more money to the investor than the investor would realize in a foreclosure. That all makes sense.
SAITO: Borrowers and loan counselors say an extreme short payoff offer can feel like winning the lottery, but the lucky streak ends if you can't make the payoff. Bus driver Matthew Sloan(ph) fell behind on the mortgage on his suburban Cleveland house after diabetes forced him off the job. Earlier this month, his loan servicer, GMAC, offered him a payoff deal on his $140,000 mortgage.
Mr. MATTHEW SLOAN (Bus Driver): Forty thousand dollars? You don't see that every day. But right now, I just don't have 40,000. If I did, you know, I'd buy this house. I'd buy this house just like that.
SAITO: Sloan has 45 days to find funding, and is considering options from loans from other banks to private investors. He hasn't had much luck. But despite the challenges, loan counselors welcome these extreme short payoff offers as another tool to help clean up the mortgage mess. For NPR News, I'm Mhari Saito in Cleveland.