Advice for desperate homeowners

Compare this homeowner:

The lawyer, now divorced, calculated that the mortgage payments, now $6,200 a month, plus taxes consume 96 percent of his net income, which includes occasional rent from vacationers who use the house. He lives with relatives and sleeps on the floor.

“I don’t regret what I did,” he said. But a foreclosure would hurt his career and finances, he said. “And I was raised to pay back what I borrow.”

With this one:

Mr. Geller said he had heard of just one loan balance reduction won by a borrower.

That borrower, a real estate consultant in California who did not want to be identified because he feared angering his lender, said he used his understanding of state law to negotiate the refinancing. He bought a condominium two years ago for $450,000 and invested another $50,000 for improvements. His ARM had a 5.5 percent initial rate that was soon resetting to 7.25 percent. But his condo is now worth only about $350,000.

His lender agreed to give him a 6 percent fixed-rate mortgage and, he said, to knock $135,000 off the principal.

The agreement came only after he stopped paying his mortgage for two months. “I am very happy and grateful to the lender because what I owe on my condo now is in line with its worth,” he said. “I’m ecstatic.”

It's a sad fact that the banks are perfectly willing to squeeze every last penny from the first borrower and still foreclose on him. This is why people walk away from their upside-down mortgages even when they still have the ability to pay.

Lenders have to at least think you might stop paying before they'll work with you.