Your lender doesn't want your house

By Liz Pulliam Weston

If you're in danger of falling behind on your mortgage, or if you're already late, you may be skeptical about your lender's willingness to help.

And if you take the advice we personal-finance types typically offer -- call the lender as soon as possible and ask for help -- you could find yourself stymied by the lender's bureaucracy or even told to come back when you are really behind in your payments.

Home-loan expert Jack Guttentag has heard from several borrowers who were blown off by their lenders in this way.

"(The homeowners) got a response of, 'Don't bother us. Come back when you're two months behind,' " said Guttentag, who runs the Mortgage Professor site.

Other borrowers can't even find someone to talk to them.

"It can be intimidating," said Rick Harper, the head of housing counseling for the Consumer Credit Counseling Service of San Francisco. "They may be trying to reach a company in a different time zone (with limited phone hours), or they may wind up in the collections side of the process . . . where all they hear is 'pay up, pay up.' "

It's no wonder many people become convinced their lenders are more interested in taking back their homes than in helping borrowers to keep them.

So I'm here to tell you, with the help of experts who know the mortgage-lending business, that your skepticism is almost certainly unfounded.

To put it succinctly: "The last thing the lender wants is your house," said Jim Svinth, the chief economist for LendingTree.com, an online mortgage broker.

Furthermore, if you can get to the right people, you have a lot more options for saving your house than you did a decade ago.

"Lenders . . . tend to look at loan modifications in a much more friendly way than they did 10 years ago," Harper said. "The lenders don't want these homes back in foreclosure."

Why lenders don't like foreclosure

To understand why these things are true, it helps to know a bit about the lending process, as well as what happens in foreclosure:

Most loans are made -- then sold. The majority of residential mortgages are quickly packaged into securities and sold to investors. The company that accepts your payments is what's known as the servicer. The servicer takes a slice of your payments as compensation, then forwards the rest into a pool of cash that's used to pay dividends to the investors.

As you might guess, the servicer's primary interest is in making sure your payments keep coming. If you default and wind up in foreclosure, any proceeds from the home sale go to the investors, and the servicer has lost its income stream from your loan. (Still, predatory servicers do exist. See "When mortgage firms don't play fair.")

Even if the loan isn't sold and is still held by the original lender, foreclosure remains a bad outcome.

"Lenders are going to lose money holding that house," Svinth said. "They have to maintain it, insure it, market it . . . until it sells."

Meanwhile, they're not getting payments for the loan. Whatever equity remains after the home is sold and all the costs are paid is typically returned to the borrower.

More homeowners are in trouble

Often, though, there isn't any equity. If there had been, it's likely the homeowner would have refinanced the house or sold it before foreclosure became necessary. So the lender winds up losing money on the deal. Which leads us to important fact No. 2:

The number of "underwater" homeowners has increased. Programs to increase the percentage of families that own homes means more homebuyers have small or nonexistent down payments. Many have signed up for interest-only loans that don't build equity, or so-called option mortgages, which allow them to pay so little that their mortgages actually increase in size over time.

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