Mortgage borrowers know that they don't know much
|By Holden Lewis
You wouldn't believe what homeowners don't know about
mortgages. No, scratch that. Yes, you would.
Some recent industry-commissioned polls show that
consumers don't feel knowledgeable about home loans and they don't
know what to do if they fall behind on their monthly payments. Furthermore,
they view their homes as secure piggy banks -- a notion with some
merit, as long as they realize that loans against equity have to
be repaid with interest.
The most refreshing message coming out of these polls
is this: People are aware of their gaps in knowledge. What's less
clear is whether they know where to go to get the information they
need. They certainly aren't seeking advice from the debt-averse
generation that grew up during the Depression.
Want to try your knowledge before continuing? Take
Blind to the options
In a survey conducted by Radian Guaranty, a mortgage insurance company,
52 percent of the homeowners said they didn't know much about the
mortgage options that were available when they bought their homes.
The question, "How much did you know about your
mortgage options" leaves a lot of room for interpretation,
but it's unambiguous that a lot of borrowers wish they had known
more when they signed on the dotted line.
Although they felt like they didn't know enough, these homeowners
weren't dummies. Homeowners were asked what two pieces of advice
they would give to prospective home buyers. More than half of the
respondents would tell home buyers to figure out how much house
they could afford. Another 45 percent would suggest that the buyer
find out about all the various mortgage options, and 36 percent
would recommend getting preapproved for a mortgage before looking
for a house.
That's the right idea, says Radian's executive vice
president for mortgage insurance, Mark Casale, in a press release.
"Certainly, having the foresight to get pre-approved will help
prospective buyers focus on the right price range."
Delinquent? Pick up the phone
While about half of home buyers say they didn't know about all of
their mortgage options, things are worse for those unfortunate homeowners
who fall at least a month behind on their payments. More than 60
percent of these delinquent borrowers don't know of the various
workout options that are available to them, according to a survey
commissioned by Freddie Mac, the mortgage funding giant.
People don't know their options because they don't call their
loan servicer. Three-quarters of delinquent borrowers recall being
contacted by their servicers. It's hard to forget those intimidating
collection calls. But fewer than half of the delinquent borrowers
ever contacted their lender. Presumably, they let the answering
machine pick up, and they never called back.
Bad move. Freddie Mac and rival Fannie Mae require
mortgage servicers to explore workout options with delinquent borrowers.
Sometimes something can be worked out, and sometimes it can't. But
if you have fallen behind by one or two months, it can't hurt
to call the company that collects the mortgage payments and see
if something can be worked out.
"That's the key thing," says Brad German,
spokesman for Freddie Mac. "How do we get more borrowers to
follow up on those opportunities, on those contacts?"