WASHINGTON — A former nemesis has become a crucial ally as banks try to rev up loan modifications.
The Neighborhood Assistance Corporation of America, whose president, Bruce Marks, is known for his guerrilla-style campaigns against banks, has developed software that lets it rewrite loans directly for banks with struggling borrowers.
The group is holding workshops around the country to reach out to people facing foreclosure. Its first, held in late July in Washington, lasted three days and attracted 20,000 people, most of whom it claims will eventually receive a loan workout. At least 10% already have.
Though the biggest beneficiaries of the workshops are borrowers, the group's efforts have also proven a boon for individual banks, some of which have been overwhelmed by workout requests from borrowers.
"We have found NACA to be one of the most effective counseling services in the nation," said Michael Gross, the director of Bank of America Corp.'s loan administration/loss mitigation department, who said the Charlotte company has worked with the group for nine months.
Under Mr. Marks, NACA has often publicly pursued banks and their executives for refusing to work with him. He once was known for confronting bank officials' children on school playgrounds about their parents' work.
"That was a long time ago," Mr. Marks said when reminded of his tactics. "But how could you not do it when the children of the people losing their homes have to face that reality? How could you say the children on the other side shouldn't face it, too?"
Though those confrontational days have not been forgotten, some banks have come around to the idea of working with Mr. Marks' group, particularly as the demand for loan modifications intensifies.
"As I think one might suspect, historically, NACA and the lending community might have approached this goal from slightly different perspectives at times," Mr. Gross said, "but once we actually sat down to talk to each other and find out what our methods were and what our end objectives were, we found our interests were very much aligned."
B of A and its Countrywide Financial unit, Citigroup Inc., and IndyMac (through the Federal Deposit Insurance Corp.) have all signed agreements with NACA agreeing to accept loan modifications submitted by the group. (The banks reserve a right to change the modification if necessary.)
Though several advocacy groups offer credit counselors, most lack the ability to directly rewrite a loan's terms.
But NACA's counselors use the group's software to analyze a borrower's income and expenses and prepare a restructuring plan. In exchange, the group requires the borrower to agree to changes in behavior that make loan repayment possible.
"When we do a mortgage restructure, we tell them they might have to change their car, they might have to give back a car," Mr. Marks said. "If they're spending a lot on their credit cards, you might have to rip up your credit cards."
The group began building the software 10 years ago from the ground up, and it went live in January 2004.
NACA can use it to scan in all documents establishing a borrower's income and to analyze income and spending habits to determine exactly what mortgage the borrower can afford.
Once NACA agrees with a borrower, it sends the loan's servicer an electronic file with the borrower's complete financial records, the budget, and a restructuring proposal.
"All they have to do is accept it — and they do," Mr. Marks said.
He argued that NACA's system is superior to those of many banks, saying many financial institutions are understaffed and misdirected. Many banks still assume a single disruption in a borrower's life, such as a divorce or an accident, has caused them to fall behind on mortgage payments. But today many defaults are occurring because borrowers were unable to afford the loan at origination, he said.
Mr. Marks said some banks like NACA's software so much they want to buy it.
"Chase [Home Finance], for example, came in here," he said. "They were very interested in buying our software."
A Chase spokeswoman declined to comment.
NACA insists that each loan be restructured to a lower interest rate and that the rate be locked in for the duration of the loan.
Some loan servicers object to that, arguing that some borrowers do not merit a cheaper, fixed-rate loan, particularly if they have overspent in the past and are unlikely to stick to a new commitment.
"Servicers will not grant every request for a loan modification, forbearance, or short sale if the borrower has an ability to meet their contractual obligations," said Tom Deutsch, deputy executive director of the American Securitization Forum.
But Mr. Marks said fixed-rate workouts are the only way to resolve the housing crisis. Temporary fixes merely kick the issue down the road, he said.
"If you're wanting the homeowner to invest in their home … they've got to have the confidence that that payment will be locked in forever," he said. "The servicers want to have it as step increases. Do it for three or five years and then have it go up or be reevaluated. That's exactly what has gotten us into this problem in the first place."
Though only a few banks have signed broad agreements with NACA, other institutions are working with the group on individual loans.
For banks that are reluctant to work with NACA, Mr. Marks said, he urges borrowers to contact their congressional representative for help. He is also collecting home phone numbers of top executives at uncooperative lenders, he said, and plans to pass them out to borrowers whose modifications are not accepted.
Not surprisingly, some object to Mr. Marks' philosophy and his methods.
In particular, some critics disagree with a key element of NACA's budgeting advice to struggling borrowers: The first mortgage is absolutely essential; paying off a second mortgage, credit card debt, or other loans is less crucial.
Mr. Marks said some adversaries — and he singled out Wells Fargo & Co., whose portfolio is heavy with home equity loans — are too focused on collecting borrowers' other debts. A spokesperson for Wells declined to comment.
During the next two months, NACA has scheduled 11 more restructuring workshops similar to the one in Washington.
The group, which has 38 offices in 30 states and uses 225 trained mortgage consultants, pulls in staff members from across the country for each workshop.
Events are planned for New York, Chicago, Los Angeles, and Houston, as well as hard-hit areas like Fort Lauderdale, Fla.; Las Vegas; Phoenix; Columbus, Ohio; and Denver.
Turnout is expected to exceed 20,000 in each city, Mr. Marks said. The Washington workshop drew people from as far away as Florida.
"People will come when they see a real solution," he said, noting that news of the success in Washington had spread. "It got out by word of mouth."