Can’t Pay The Loan but Won’t Pick Up the Phone

The Washington Post Sunday - - Business -

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: sin­gle­tarym@wash­post.com.

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