Rich Also Ensnared in Mortgage Crisis

Their strategy was to sell the house after a couple of years, but when they put it on the market in April 2007, there were no buyers. 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.”

His strategy now is to sell when prices revive. But that could take time, because a bank just sold a neighbor’s foreclosed home for $850,000.

Elizabeth Hamilton, the maiden name of a Los Angeles real estate consultant who did not want to be identified for professional reasons, said she turned to a nonprofit housing counseling agency when she was making no progress in persuading her lender to reduce the interest rate for the ARM she took on her $1.5 million home. The introductory rate was 7.9 percent for two years and payments were $6,541.

Now the interest rate is 10.25 percent and payments are $8,013. She cannot afford the payments, she said, because her husband has died and her income has fallen. “I need an interest rate reduction so I can get myself and children back on track,” she said.

A housing counselor, certified by the federal Department of Housing and Urban Development, quickly got through to her servicer’s loss mitigation department, where loan modifications are made. Now Ms. Hamilton needs to provide more personal financial information.

The best no- or low-cost housing advisers have contacts with lenders’ decision makers. “Our view is you need counselors who will negotiate for you,” said Bruce Dorpalen, director of counseling for Acorn Housing, a nonprofit counseling group.

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.”

Copyright © 2008 The New York Times

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