Mortgage Lenders Seek Ways to Avoid Foreclosure
'Short sales' are conducted only as a last resort for many lenders

The number of borrowers whose mortgages are at some point in the foreclosure process has hit the highest level in five years.The mortgage industry, which ultimately is uninterested in owning properties, is reaching out to troubled borrowers, trying to help them head off delinquencies.Bank of America Corp. is allowing some borrowers with ARMs to refinance into a different loan at no cost. Citigroup Inc.'s CitiMortgage unit is contacting delinquent borrowers within days after a missed payment, if it doesn't fit their normal bill-paying habits. National City is one of a dozen major lenders behind a national advertising campaign that will, beginning this spring, promote a toll-free number (888/995-HOPE) borrowers can call for homeownership counseling and referrals.

Some lenders may allow a house to be sold at a loss and forgive the remaining debt in a process known as a short sale. These can be difficult to negotiate because many loans are packaged and sold to investors, so the mortgage company doesn’t have much flexibility. “There are all sorts of log jams,” says John Izzo, a Las Vegas real estate practitioner who says he is working on 19 short sales, but figures that he maybe able to successfully close just one in five.

--Wall Street Journal, Ruth Simon (01/24/2007)