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Non-Profits Sending Delinquent Home Owners to the Lender
Home owners who are falling behind on payments on their subprime mortgages and heading toward default need a crash course on protecting their investment and credit-worthiness, according to representatives from the nonprofit and mortgage sectors addressing a May 14 Homeownership Summit in Washington, D.C. conducted by the Department of Housing and Urban Development.
The first thing that home owners who run into financial trouble need to learn, they said, is to get in touch with their lender as quickly as possible to avoid foreclosure by working out a new loan agreement or, if that’s not possible, selling the home before it falls into the hands of the bank.
Unfortunately, most home owners heading toward foreclosure would rather avoid their mortgage lender for a variety of reasons, including embarrassment and a misperception that what the lender really wants is to gain possession of their home.
Foreclosure Not the Only Option
Freddie Mac is interested in outreach initiatives for borrowers, said Robin Stout Magala, the company’s senior delinquency resolution manager, to spread the message that “foreclosure is not the only option.”
Following up on research indicating that more than 50% of mortgage borrowers in default and in danger of foreclosure never contact their lender for help, Magala said that Freddie Mac commissioned a study two years ago to find out why.
Freddie Mac’s survey research found that 61% of the 1,000 delinquent borrowers and 73% of the 1,000 current home owners who were polled thought that foreclosure was the only option under the circumstances. Twenty-eight percent of the home owners said they could handle the situation on their own, and 17% said there was no reason to call because they didn’t have the money to make the payment.
Colleen Hernandez, president and executive director of the Homeownership Preservation Foundation, reported that her organization’s 888-995-HOPE hotline for home owners suddenly finding themselves in danger of losing their homes has been ringing off the hook in recent months and has been making significant progress in heading off foreclosures.
In partnership with mortgage lenders, nonprofit organizations and city government agencies, the 24-hours-a-day, seven-days-a-week telephone service puts home owners in touch with free advice and counseling from HUD-certified counseling centers.
The hotline received more than 14,000 calls during this year’s first quarter, a 30% increase from a year earlier. Roughly 47% of the calls result in counseling, which costs about $100 per case, Hernandez said, but considering that each foreclosure represents a loss for the lender of at least $30,000, successful counseling with 128 households a day is averaging $3.84 million in savings.
One “silver bullet” for persuading delinquent families to seek counseling, she said, is the simple assurance that “I guarantee I’ve seen worse.” When they hear that, “people feel relieved and are ready to take action.”
Ad Campaign Set for June 25
Ken Wade, chief executive officer of Neighborworks America, told the HUD summit that his organization has been working with the Ad Council on a wide-ranging media campaign to advise consumers that they can reach out and work with someone who will help solve their foreclosure problem. The campaign will be launched on June 25.
Panelists at the HUD summit agreed that the homeownership education effort needs to begin long before a household encounters problems making their payments and should be required for subprime borrowers even before they consider purchasing a home.
“Even a person with a 700 credit score may need a class on closing and settlement,” said Marcia Griffin, founder and president of HomeFree-USA, which has established a “Save a Family” foreclosure prevention fund to help families keep their homes. Pre-purchase education is critical, she said, and “of value to all home buyers.”
Unfortunately, Griffin said, home owners who are having problems with their mortgage payments are unaware that support is available through nonprofit agencies such as hers. “People need to know that there are organizations that can help them out,” she said. “They’re scared to death. They just don’t know what to do.”
Lender Sensitivity Training May Be Needed
Complicating legitimate efforts of nonprofits, home owners with problem loans can also be vulnerable to calls from scam artists who are seeking to take advantage of their problem. Hernandez advises her clients that there are three red flags that could signal that the offer is not on the up-and-up: “Are they calling you, or are you calling them? Is the service free or are they charging? And are they telling you to hurry up and sign something?”
Participants in the homeownership summit also said that when home owners in trouble call their lender they often encounter someone who is more interested in collecting the money that is owed than in loss mitigation. Many lenders also won’t start the renegotiation process until the borrower is at least 90 days delinquent, they said, when they should be taking action at the earliest sign of a problem.
Also, when households are having problems with their mortgage payments they are also likely to be juggling bills, “and credit card companies can give mortgage companies a real run for the money,” said Magala.
Hernandez said that a major part of the home owner counseling is helping them to work out a budget, and they are told that “Visa can’t take the house away,” she said.
Roughly 25% of delinquent borrowers don’t have the financial means to solve the problem, said Magalas, and they need to understand that they can avoid foreclosure by selling their home through a short sale to an investor.
“We need to get them to understand why they need to sell the home as quickly as possible,” said Griffin. “And it’s a lot easier to hear from a non-profit organization than the lender.”
Following up on the meeting in Washington, HUD will be conducting 10 regional Homeownership Summits across the country to discuss strategies for assisting vulnerable home owners and home buyers to avoid predatory lending practices and assess tools, techniques and methods for successful loss mitigation.
The summits will take place in: Philadelphia and Seattle on June 20, Los Angeles on June 25, Denver on June 26, St. Louis on June 27 and Houston on June 28. Dates have yet to be determined for Atlanta; Cleveland; Hartford, Conn.; and Newark, N.J.
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