Loan Modification

John and Grayce Coffman got a killer deal on their Fullerton home's mortgage – just 1 percent interest for five years.

That's a rate any homeowner can envy. However,  it came after six months of complex, sometimes contradictory, negotiations with the nation's largest home lender to avoid foreclosure. They couldn't afford their previous loan.

"It's fantastic. It really is," Grayce Coffman said. "That will give us time to regroup and find out what we want to do."

Amid a housing market hammered by record foreclosures, some experts say lenders are more willing than they were just a year ago to strike favorable deals with cash-strapped homeowners. Recent studies seem to bolster that perception.

But consumer groups say lenders, overwhelmed by the sheer magnitude of borrowers in trouble, aren't doing enough to make a meaningful dent in foreclosure totals. In Orange County alone, banks took possession of more than 1,000 homes in May and again in June. That far outpaces foreclosure records in the last housing slump.

Robert Satnick, chairman of the California Mortgage Bankers Association, said it's in the best interest of lenders to work with borrowers, because the banker generally loses more money on a foreclosure than by cutting a deal.

A typical foreclosure costs a bank about $50,000 just for processing. The lender can lose even more money if the price of a home falls below the value of the mortgage, something much more common in this downturn, Satnick said. He adds that banks realize it's better for everyone to avoid foreclosures, which can lead to lower property values and neighborhood blight.

Satnick does, however, admit that lenders have been slow in hiring and training people to handle loan modifications in the face of record foreclosures. But that's the way it should be, he said.

"You don't want untrained people handling these calls," Satnick said. "We are trying to adjust as responsibly as possible."

Most borrowers probably can't get as sweet a deal as the Coffmans. The reason: it was a mistake.

Countywide Financial wanted to help, but not with 1 percent interest for five years. It meant to offer 1 percent for the first year, with the rate increasing one percentage point for each of the next four years. It later decided to honor the error.

Why did Countrywide honor the mistaken offer? In an emailed statement, the company said: "A clerical mistake was made on the loan modification documents in favor of the Coffmans. Since it was our mistake and the erroneous documents had been signed, we are honoring the rate and modification terms for the full five years."

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