Can’t Pay The Loan but Won’t Pick Up the Phone
H ome foreclosures are up, in part because of defaults on riskier subprime loans, a trend that’s putting communities at risk. But, if past surveys continue to prove true, many financially troubled homeowners will never contact their lenders to work out a way to keep their homes.
Foreclosure filings, which include default and auction sale notices and bank repossessions, rose 7 percent in March from the previous month, and were up 47 percent from a year ago, according to the Web site RealtyTrac, which follows foreclosures.
California, Florida, Texas, Michigan and Ohio had the most foreclosure filings, accounting for 50 percent of the nation’s total, RealtyTrac found.
RealtyTrac says that when you exclude mortgage defaults among subprime borrowers — typically people with past credit issues — foreclosure filings nationwide are at normal historical levels. However, if foreclosure activity continues to accelerate, we could see “widespread consequences” for all of us, RealtyTrac concluded.
Some steps have already been taken to help people in danger of losing their homes. Neighborhood Assistance Corporation of America, a housing advocacy group, said it has received funding from Citigroup and Bank of America to assist borrowers in refinancing $1 billion in mortgages. Freddie Mac and Fannie Mae, two of the nation’s largest mortgage investors, announced plans that would help lenders refinance subprime mortgages held by strapped homeowners.
However, in one of my recent online discussions, several people expressed outrage at moves to assist distressed home borrowers.
“Are we really going to bail out people who are about to get foreclosed upon?” one reader asked during the chat. “Why should they get help when there are those of us who will never own homes if the prices don’t come down, and they won’t come down if they continue to be artificially inflated by people who couldn’t afford what they bought.”
The fact is, foreclosures don’t just hurt the credit and spirit of the defaulted borrowers. They can impact an entire community.
“The value of surrounding homes goes down, and other homeowners will have difficulty selling or refinancing their homes, leading to further disinvestment in communities,” testified Kenneth D. Wade, chief executive of NeighborWorks America, a Washington-based nonprofit, before the House Financial Services Committee.
A study by the Woodstock Institute in Chicago on foreclosed properties in that city found that each foreclosure of a conventional mortgage within a city block of a single-family home resulted in a 0.9 percent to 1.1 percent decline in property value.
It’s absolutely in everyone’s best interest to help borrowers facing foreclosure. In addition to asking for refinancing help, there is something borrowers themselves can do to stave off a foreclosure — pick up the telephone and call their lenders or the companies servicing their loan to explore any loan work-out options.
But the reality is that many financially strapped homeowners don’t respond to calls or letters from their lenders. An overwhelming
majority of respondents in a Freddie Mac survey said they didn’t call the company servicing their loan because they didn’t think they had any options that could help them avoid losing their home.
Wade said in a similar survey of Chicago homeowners, almost 50 percent of borrowers who ended up going into foreclosure had no contact at all with their lenders even after the lenders made numerous attempts to contact them.
“When you think about it that’s a pretty remarkable number,” Wade said in an interview.
No question, with so many loans being sold and resold to investors, it can be difficult for some borrowers to figure out whom to call to resolve their arrears. Even so, as soon as you know you can’t make your next mortgage payment, it’s imperative to take action. You may have some options, including negotiating a repayment plan, requesting forbearance and asking to restructure the loan, Wade said.
Under a repayment plan, a lender will give you a fixed amount of time to repay the amount you are behind by combining a portion of what is past due with your regular monthly payment. At the end of the repayment period, you will have paid back the delinquent amount.
In the case of a forbearance, the lender will temporarily allow you to pay less than the full amount of your mortgage payment and may even exempt you from paying anything during the forbearance period.
Typically you qualify for forbearance if you can prove that you’ll be getting funds from a bonus, a tax refund or some other source that will let you bring the mortgage current at a specific time in the future. You may also qualify for a forbearance if your income has dropped temporarily.
In the case of a loan restructuring or modification, the lender may lower your interest rate or extend the length of your loan.
“Three years ago it was less likely a lender would restructure a loan but as foreclosures have exploded I think more lenders are more willing to do things differently,” Wade said.
If you’re afraid to contact your lender, then look for community help. For example, the Homeownership Preservation Foundation, a nonprofit organization based in Minneapolis, has established — with a lot of funding from lenders — a toll-free hotline at 888-995-HOPE (4673), available in English and Spanish. You can also get information by going to www.995HOPE. org.
The telephone lines are staffed 24 hours a day, seven days a week with counselors who can help homeowners develop a budget or explore loan work-out options.
“The key is to get people experiencing problems in paying their mortgage to call as soon as possible,” Wade said.
If you can’t make your mortgage payment, don’t be afraid to call for help. K On the air: Michelle Singletary discusses personal finance Tuesdays on NPR’s “Day to Day” program and online at www.npr.org. K By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. K By e-mail: email@example.com.