U.S. lenders cut deals to avoid foreclosure crisis

By Nick Carey

CHICAGO (Reuters) - In a relatively short space of time, Sharon Jackson lost her mother, her sister, and her job and came within a whisker of losing her home of 20 years as well.

"If anything bad could happen, it was happening to me," said Jackson, 55, while making a strong cup of coffee in the kitchen of her single-story home on Chicago's blue-collar South Side. "I was behind two months, but I didn't want to lose my home and see it boarded up."

Just four doors away, a house that went into foreclosure last year is boarded up. Jackson recalls watching as squatters moved in and stripped it of anything that could be sold.

Fearing her home was next, she approached her lender, Homecomings Financial, a unit of GMAC Financial Services. To her surprise, it cut the interest rate on her $80,000 mortgage, reducing her monthly payment to $713 from nearly $1,000. With two part-time jobs -- as a book keeper and as an "Avon Lady" selling cosmetics door-to-door -- Jackson says she can now afford her payments.

"I was long overdue for some good luck," she said, taking off her glasses and wiping tears from her eyes.

With so many houses in the United States facing foreclosure, mortgage lenders are starting to offer favorable deals for distressed borrowers like Jackson that they would not have agreed to just six months ago.

This is not altruism, but a case of lenders trying to avoid being stuck owning hundreds of thousands, or even millions, of homes, according to economists, academics and other experts.

"The smarter lenders are cutting deals in order to minimize their losses," said Peter Morici, a professor at the University of Maryland School of Business. "They don't have much choice."