Lenders help more homeowners avoid foreclosure

— -- The deep economic crisis has more lenders willing to change mortgages or repayment schedules for homeowners at risk of default, to stem their potential losses from foreclosures.

More than 3 million U.S. homeowners have received — or are expected to receive — more affordable loans through ongoing programs initiated over the last 15 months.

But even outside the formal programs, says David Kittle, chairman-elect of the Mortgage Bankers Association, lenders are more willing now than a few months ago to agree to changes in monthly payments. In some areas that have a high number of subprime loans or foreclosures, he says, some lenders are even going door-to-door to contact homeowners.

"There's really no reluctance anymore," Kittle said. "Lenders lose $40,000 to $50,000 on every loan that goes into foreclosure."

Kathleen Day of consumer advocate Center for Responsible Lending says even with banks more willing to make modifications, additional help is needed. She also said door-to-door contact with late borrowers may be little more than a public relations ploy.

Some lenders had been reluctant to do loan work-outs because they may hold a large number of risky loans, and modifications carry their own costs to banks. Others simply lacked the staffing or internal programs for systematic loan reviews.

Signs of the shift:

•Mortgage servicers have modified existing mortgages or agreed to easier repayment plans, allowing 2.26 million homeowners to avoid foreclosure since July 2007, according to Hope Now, a private sector alliance of mortgage servicers, counselors and investors.

•As many as 400,000 homeowners may avoid foreclosure over the next three years under a program that started Oct. 1 through the Federal Housing Administration. The program, authorized by Congress in July, allows qualifying homeowners to refinance loans into a 30-year, fixed rate. The mortgage must have originated on or before Jan. 1, 2008.

•Nearly 400,000 homeowners will be able to get more affordable loans under an agreement this month by Bank of America with a number of state attorneys general to modify mortgages originated by Countrywide Financial, now owned by the bank.

Despite banks' forbearance, foreclosure filings are rising, according to the most recent reports. Foreclosure activity increased 12% in August from July and 27% from August 2007, according to industry watcher RealtyTrac. Last year saw 2.2 million foreclosure filings.