It may not be apparent from the breakneck pace of foreclosure filings in the first quarter of 2009, but mortgage companies say that the last thing they want to do is foreclose. Seizing a delinquent borrower's house costs a lot of money.
Foreclosure begins to look even less appealing when you factor in that, thanks to the fall in housing prices since they peaked in 2006, the houses mortgage companies will be paying to repossess are probably worth significantly less than the amount left outstanding on the loan. It follows, then, that the key to keeping the house is to make it less expensive for the lender to work with you than to foreclose.
How does one go about working out a plan to keep his or her home?
When you fall behind on payments, your chances of getting cooperation from the mortgage servicer are better if you follow these guidelines.
Step-by-step plan for seeking help:
- Respond to the mortgage company's phone calls and letters.
- Seek advice and negotiating help from a third party.
- Figure out if your problem is short-term or long-term.
- Decide what you want and ask for it.
- Document income and expenses; keep all correspondence with the servicer.
- Be persistent in your quest to talk to the right people at the mortgage company.
Respond to the mortgage company's phone calls and lettersThe mortgage servicer is the company that collects monthly payments, passes along the payments to the homeowner's insurance company and tax collector, and makes phone calls and sends letters when the borrower falls behind.
Academic researchers have found that, in about half of foreclosures, the delinquent borrower never talked to the servicer.
"One of the challenges we have is in actually establishing effective communication with some of our borrowers in distress," says Paul Koches, senior vice president and chief counsel for Ocwen Financial Corp., a large servicer of subprime mortgages based in West Palm Beach, Fla. Fear, embarrassment and shame keep delinquent borrowers from talking to servicers.
"There's a great deal of psychology that swirls around delinquencies," Koches says. "But we have no chance of helping someone if they're not willing to talk to us."
And many homeowners could use the help.
Delinquencies and foreclosures have been rising nationwide for more than two years. As mortgage lenders lay off loan officers, mortgage servicers hire debt collectors and loss-mitigation specialists. Ocwen currently has 560 employees who work with struggling borrowers trying to stay in their homes. Before the real estate bubble burst two and half years ago, Ocwen had just 70 employees working on these issues.
"We train our collectors to have empathy," says Teresa Bratcher, Ocwen's director of foreclosure prevention. "These people, for the most part, didn't choose the circumstances that they're in."
Tip: Answer the phone and open your mail, but don't agree to any terms until you read the next tip.
Seek advice and negotiating help from a third partyRespond to the mortgage servicer, but don't be rushed into making a promise that you can't keep. Before making a deal with the servicer, describe your situation to an attorney, accountant or a knowledgable mortgage person, advises Neil Garfinkel, a lawyer with Abrams Garfinkel Margolis Bergson law firm in New York City.
When you are in danger of foreclosure, "those are perilous waters and you want to make sure you have a good adviser who can maybe serve as an intermediary to the lender," Garfinkel says.
"I urge people to get some kind of help with this process, to the extent that they can," says Michelle Lewis, president of Northwest Counseling Service, an agency in Philadelphia that offers mortgage counseling. "They can go out and do it on their own, but they need to be cautious."
One place to go is a housing counseling agency or a consumer credit counseling service. A good place to start is the NeighborWorks Center for Foreclosure Solutions' Web site. NeighborWorks counselors will make referrals to local agencies. Or you can make a call to (888) 995-HOPE, the hotline established by the nonprofit Homeownership Preservation Foundation. It offers 24/7 access to foreclosure counselors, nationwide.
As the foreclosure crisis has deepened, servicers and counseling agencies have developed closer relationships to facilitate mortgage workouts.
"We've developed very effective relationships with community activist groups – counseling organizations, neighborhood development associations, faith-based groups," says Koches, of Ocwen.
The earlier you contact a counselor, the more likely it is they'll be able to help you.
"You don't have to be in default to receive help," says Josh Furman, director of counseling for the Homeownership Preservation Foundation. "If you think your situation is going downhill or if you see kind of an imminent default situation because of a layoff, or a payment adjustment, we want you to reach out early to see what kind of options you have -- the sooner the better."
Tip: Choices for guidance include consulting an attorney, a credit counselor or a housing counseling agency. You can find a counselor through the Hope Now Coalition, a public-private partnership between the federal government and lenders designed to stem foreclosures. You can also find help at the HUD Web site, which maintains an updated database of approved housing counselors.