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Before you have a chance at getting your mortgage payment modified or lowered, you have to think like the banker and ask, “Why should I modify this loan?”

That's the advice of Todd Rooker of Minneapolis, a financial adviser who owns Financial Crisis Recovery LLC and specializes in helping troubled debtors.

An estimated 1 million U.S. homes will go into foreclosure this year, 10 times the normal number.

Remember that lenders legally do not have to modify your loan, Rooker said, and many homeowners who think they are negotiating a modified mortgage with a lower payment are really losing their homes to foreclosure and may not know it.

Only 5 to 10 percent of delinquent homeowners actually succeed in permanently modifying their mortgage and, of those, far fewer people succeed in getting their principal lowered even if the house's value has fallen.

“If you think your bank will work with you, I wouldn't bank on that,” he said.

Rooker shared some information that he presented to real estate professionals at a continuing education seminar Oct. 2 in Billings.

“Before you ask your bank for a loan modification, take your gross income times 0.31 percent divided by 12,” he said. “That's the most valuable thing I can tell you.”

That figure gives you the lowest level, roughly one-third your gross income, that a lender will agree to in modifying a mortgage.

Let's say your annual gross income is $50,000.

Multiply that by 0.31 to get $15,500. Divide that by 12 you get $1,292.

That $1,292, including principal, interest, insurance and taxes (or PITI) is probably the lowest possible monthly mortgage payment any lender will consider modifying.

“This will tell you whether you've got a shot,” Rooker said.

With U.S. home foreclosures targeted to top 1 million homes this year, why don't more lenders agree to modify loans and avoid costly foreclosures?

The little-known secret is that lenders often make money taking back properties, Rooker said.

Let's say a bank loses $100,000 after selling a foreclosed home.

If the borrower stops making payments, the lender can foreclose and get paid as much as $85,000 in combined insurance and federal subsidies, Rooker said.

Then the lender can sell the bad debt to a debt collection company or a law firm for, say, 10 cents on the dollar, or $10,000 in this example.

Now the lender has recouped $95,000, or 95 percent of the original mortgage.

“Then they write off 35 percent on their taxes and, holy cow, now they're making money on foreclosing homes,” he said.

Even though he represents borrowers, Rooker said very few of his clients understand how to manage money, specifically following a budget and living within their means.

“Our office joke is somebody deeply in debt who calls and has to get right in to see me,” he said. “Then I call back and they've gone on vacation.”

Foreclosures are needed to reset inflated real estate prices and to bring housing back into line with incomes, Rooker said. And the numbers are going to get worse before they get better. Areas that have enjoyed the greatest jumps in property values are the most susceptible to the sharp declines or corrections. Tighter lending standards also are making it more difficult to sell homes, which also cuts into property values.

“I think the foreclosure storm is going to come like the sun coming up in the morning,” he said. “It's just taking longer in Montana.”

Contact Jan Falstad at jfalstad@billingsgazette.com or 657-1306.

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