But what's best for a borrower isn't always best for the lenders, who weigh the cost of every workout against the cost of foreclosure. Whether or not a homeowner gets help boils down to the numbers.
If keeping an at-risk borrower in their home is going to cost the lender more than a foreclosure will, that homeowner is usually out of luck. The good news is that foreclosures are expensive - at least $50,000 according to the Center for Responsible Lending.
...There is the group of people that will never be able to afford their loans. Whether it is from job loss, income loss or they inflated their income. This happens alot with the HELOC cases - people borrow much more than they can realistically pay off. The house may be worth money but the monthly cash flow can not cover the payments. That is often when people go down the HELOC spiral - borrow more money to pay the interest and debt on the earlier borrowed funds. Bad situation.
To stay in their home, borrowers almost always have to cut back on other expenses. "We'll tell someone they have to get rid of that $600 SUV payment if they want a workout," said Wesley Justice, a vice president for loss management for AIG United Guaranty, a mortgage insurer.
"I could give someone a 0% interest rate and they still wouldn't be able to afford the loan," said [Alan Goldberg, vice president with the home owner assistance division of Genworth Financial]. Those borrowers are urged to sell or do a deed-in-lieu of foreclosure, in which the lender takes possession of the property....
Another big factor in whether someone gets a workout is where they live. If the home is in an area where housing markets are in free-fall, like Las Vegas, servicers will try harder to keep borrowers in their home, since it would be very hard to sell the property. In better markets, however, a house will sell fairly quickly at a good price, the math may favor foreclosure.
Also note that areas that are really hard hit banks are more willing to negotiate. If there is already a market glut the lenders to not want more depreciating properties on their hands. Unfortunately if your area is still selling you have less negotiating room.
As hard as it may be sometimes letting go and moving on is the best financial decision for the individual.