April 22, 2007
Home 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.
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
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 http://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.