Homeowners Heave A Sigh of Relief

Two million homeowners face mortgage-payment shock by the end of 2008 as their interest rate adjusts for the first time. Many have made their payments faithfully so far, but the reset could tip some into default. Fortunately, lenders and companies servicing loan payments are more inclined to help now than in mid 2007, when the credit crunch first materialized.

This past fall, for example, Countrywide Financial, the nation's biggest mortgage lender, announced it would contact borrowers facing resets either to refinance or modify the terms of up to $16 billion of Countrywide loans. Chase, which also services mortgage loans, announced a similar strategy.

The change couldn't come too soon for Jay Zandell, 43, of Cave Creek, Ariz. In 2006, Zandell and his wife took out an interest-only adjustable-rate loan, intending to pay down principal as soon as they were able. But the couple divorced, leaving Zandell to pay the mortgage with one income.

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By the time the loan's first adjustment jacked up his monthly payment by $1,000, Zandell couldn't qualify to refinance and didn't have any takers when he tried to sell. Last summer, when he asked his loan servicer for help, it turned him down.

Zandell scrimped to cover the higher payment for a couple of months, then asked again. This time, the firm cut his interest rate back to the starting rate for two years.

Homeowners facing an untenable reset should call their lender's loan-mitigation department. Be prepared to prove that you can afford to keep paying the current amount; lenders don't want to redo the loan only to have it go south in a few months. Gather recent tax returns, pay stubs and bank statements. You may also have to prove that you've lost enough equity to preclude refinancing.