Some 'toxic' mortgages are being renegotiated

Yes, lenders are renegotiating mortgages, foreclosure counselor Cheryl Peterson says. Peterson manages the Twin Cities Habitat for Humanity mortgage counseling service in Minneapolis.

Two years ago, only two percent of those coming to her office and facing foreclosure were successful in renegotiating the terms of their mortgage with their lender, she says.

"Now, I want to say it's upwards of 20 to 40 percent, somewhere in there," Peterson says.

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The results of renegotiating a mortgage can be dramatic.

Apple Valley resident Al Yniques is on the verge of inking a plan with his mortgage holder for a new fixed rate deal.

"The interest rate is going to go down to 5.5 percent and the monthly payment will be approximately $1750 a month," he says.

That's still a big payment, but Yniques' previous mortgage was nearly 10 percent interest with monthly payments headed toward $2400, more than the self-employed music teacher and musician could afford.

Yniques is still reeling from the effects of the toxic mortgage sold to him by a broker who, he says, was one of his music students and thus a person he trusted.

The broker told Yniques he was throwing his money away on rent, he should buy a house, and the broker would help him do the deal. The broker assured him his $3000 a month income was adequate for a mortgage deal that would eventually total $330,000, he says.

Then the broker pulled a fast one, Yniques says.

"This broker had changed my income without me knowing it to $10,000 a month," he says.

To make a long and ugly story short, Yniques was sold a stated-income mortgage. He didn't supply a pay stub or tax statement to verify his income. The original mortgage lender, a California company, has since gone belly up.

Yniques called a counselor for help.

ACORN the nationwide community action group took up his cause. They brought him to Washington, D.C. to testify before Congress, and with cameras rolling ACORN had Yniques confront the owner and request better terms from the company which now holds his mortgage a Connecticut-based hedge fund.

Yniques says there was no response.

Then after several offers and counter-offers Yniques says the company coughed up a deal that he's prepared to sign.

Did the bright light of media attention on Al Yniques' impending foreclosure cause the mortgage holder to come around?

Maybe.

There might be other reasons as well, foreclosure counselor Cheryl Peterson says.

In a growing number of cases banks and other mortgage holders are running the numbers and discovering rewriting the terms of a mortgage makes as much or more sense than foreclosure. The reason, Peterson says, is foreclosure puts a house in a costly limbo, and then the lender has to dump it onto a glutted real estate market.

"That lender then has to sell it in the open market on top of holding costs that they need to pay for during the redemption period like homeowners insurance, property taxes," she says.

They've renegotiated terms of one million mortgages held by people facing foreclosure, banks and other financial service companies say.

However critics take issue with that number. And the critics argue the bankers and other lenders could do much more to help homeowners facing foreclosure.

Foreclosure counselor Cheryl Peterson adds her voice to those in Congress proposing bailouts and other provisions to address the issue.

However the proposals appear to be going nowhere for the moment.

Some foreclosure counselors say the mortgage meltdown has peaked in inner city neighborhoods and is poised to spread further into suburbs as rates on adjustable rate mortgages reset this year and next.

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