Beating foreclosure: Who to call

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NEW YORK (CNNMoney.com) -- Delinquent borrowers face a dizzying array of options when it comes to saving their homes.

On Tuesday, a coalition of the nation's six largest lenders agreed to give seriously delinquent homeowners a month's breathing room before proceeding with foreclosure.

A day earlier, Countrywide (CFC, Fortune 500) and Acorn announced a plan to try to help subprime borrowers get back on track with their monthly payments.

These efforts come two months after the Bush Administration announced an interest rate freeze for some homeowners with subprime adjustable rate mortgages.

But those who don't fit these programs' criteria should not despair. In fact, there are even more options that a lender might offer homeowners in trouble if it determines they can handle the payment. That's why it's so important for borrowers to contact either their lender or a housing counselor.

It usually doesn't matter which counseling agency homeowners approach, lenders and counselors say, as long as it is certified by the U.S Department of Housing and Urban Development.

"Lenders would make decisions based on homeowners' unique financial situations regardless of what counseling service they received," said Tracy Morgan, a spokeswoman for the Homeownership Preservation Foundation, a Minneapolis-based counseling agency that runs the HOPE Hotline.

When a delinquent borrower first contacts a counseling agency, a staffer goes over the homeowner's income, assets and expenses and makes up a budget.

At the Consumer Credit Counseling Service in Tulsa, Ok., sessions typically last 60 to 90 minutes, according to Margo Mitchell, the group's chief executive. Some of her agency's counseling sessions take place over the phone, but most are face-to-face, depending on what the borrower prefers. If they are meeting in person, the counselor will often ask for proof of income and copies of bills to get the most accurate sense of the monthly mortgage payment a borrower can shoulder.

Lenders collaborate with agencies to make sure they get the information they need to consider workout plans. Bank of America (BAC, Fortune 500), for instance, works with a number of counseling groups to let them know specific questions to ask, a spokesman said. A JPMorgan Chase (JPM, Fortune 500) spokesman, meanwhile, said the bank generally gets good information from counselors.

"The variation from counselors is not so great because we have a specific checklist," said Tom Kelly, a spokesman at Chase, which expects to modify 42% of all of its subprime adjustable-rate mortgages due to reset by the end of March.

Citigroup (C, Fortune 500) set up a special team within its Office of Homeownership Preservation to work with counselors and the borrowers that come through them. The office has set up meetings with non-profit agencies in various cities across the nation to explain to counselors the information they need to get from borrowers, said Natalie Abatemarco, the office's director. They also give the groups a special hotline number to call.

The bank likes it when delinquent borrowers come to them through counselors because the agencies can gather the necessary information from the borrower, familiarize them with the process and develop a relationship to get them to the right place within the bank.

Once they understand what they are working with, counselors can go over the options with their clients. But it's up to the lender to decide what workout to offer, if any.

Refis. If the borrower has equity in the home and a good credit score, he or she might be able to refinance to a fixed-rate loan with a lower rate. This, however, is becoming harder to do, especially since home values are dropping and lenders have tightened their refinancing guidelines. Banks take a close look at a borrower's assets before offering to refinance.

Repayment plans. Borrowers who've missed just a few payments because of a short-term financial hardship, such as a medical expense or temporary unemployment, might qualify for a repayment plan. Homeowners are given time to make up the missed payments by sending in extra money for a few months, or the arrears are tacked onto the end of the loan. But the loan's terms remain the same so the borrower must be able to afford the base monthly payments. In this case, income and expenses are more important criteria.

Rate freezes. Those who can't handle their current monthly payments can try to lobby their lender with their counselor to modify the loan. Some financial firms will freeze the low introductory interest rate or extend the loan's terms to make it affordable. But lenders are reluctant to do this unless borrowers show they can manage the loan long-term. Again, borrowers' monthly cash flow counts more than assets.

"The goal is to find those modifications so the loan won't go into foreclosure today or five years from now," said Austin King, national director of Acorn Financial Justice Center in New Orleans.

Short-sales. Homeowners who must put more than 40% of their income toward their mortgage payments may not have many options, Mitchell said. To avoid foreclosure, borrowers might want to consider a short-sale, in which the banks agree to take the proceeds of the sale even if it doesn't satisfy the loan.

Of course, those who feel their counselors has not had the time or interest in getting a true picture of their financial wherewithal or got an answer they didn't like from their lender, it is possible to go to another agency....though it might not make much difference.

At Acorn, a community advocacy group with offices in more than 100 cities and a national call center, staffers often talk to borrowers who've already contacted two or three other organizations.

"It might be best to deal with several counselors," King said.