The below is from an article posted on MarketWatch.com, a resourceful guide to what's happening in today's economy. With mortgage issues growing, this is encouraging.
Whether it's from a job loss, medical emergency, mortgage-payment hike or simply personal-finance mismanagement, a small but growing number of homeowners is falling into foreclosure every year. For most people who fall behind on their mortgage, their first instinct is to avoid all contact with the lender. But that's a mistake, consumer counselors and others say, because it's likely those financial problems will only get worse, making it harder to work out the best repayment terms.
Many borrowers don't realize that lenders are as eager as homeowners to avoid foreclosures, which cost lenders $40,000 to $60,000 per house, according to industry estimates. Most lenders offer "workout" programs where they work with the borrower on repayment plans that meet the borrower's financial circumstances. "Going to the lender is ideal. The sooner, the better," said Erica Sandberg, a spokeswoman with the Consumer Credit Counseling Service of San Francisco, certified by the U.S. Housing and Urban Development Department to provide housing counseling. Lenders agree. "It's never too early and never too late to call your lender," said Loretta Abrams, vice president of consumer affairs for HSBC North America. And, "any of our borrowers can approach our workout staff," said Tim McGarry, spokesman at Washington Mutual. "It's always our goal to keep people in homes. Foreclosure is a bad outcome for us as a lender."
But plenty of borrowers -- about half, according to some focus-group research -- are afraid that divulging their money woes to their lender will prompt the lender to accelerate the foreclosure process. That fear is not surprising: Often, when borrowers fall into financial difficulty, their first contact with the lender may encourage them to run in the other direction the next time the phone rings. That's because many lenders, if a borrower is 30 to 60 days' late, initially have the collections department call.
"A collection agent's job is really to get you to pay. They want to know when you're going to pay, how much you're going to pay, how you're going to pay," said J. Michael Collins, a principal at PolicyLab Consulting Group, LLC, a market-research firm focusing on consumers' financial decisions, in Ithaca, N.Y. "It's a very ... aggressive approach." It's not until the borrower is close to defaulting on the loan that lenders move the account to the "loss mitigation" department, staffed not by collection agents but by people trained to work with the borrower to prevent foreclosure, Collins said.
Some lenders already understand this issue. "Lenders who are working with borrowers who have a history of credit problems, they understand that the first time you make contact with that borrower when they're in trouble, you've got to facilitate a cooperative relationship," Collins said. "But what a lot of lenders are used to is more of a market where people have more income. There's no real good reason for somebody not to pay" is the standard thinking. Still, Collins says he sees a shift happening, with more prime-market lenders realizing the importance of making that initial contact with the borrower a cooperative one. Maybe that's because some see delinquency and foreclosure rates getting worse before they get better, thanks to more people holding loans with adjustable rates set to move higher. In some cases those adjustments will push up monthly mortgage bill 30% or more. More foreclosures coming?
Adjustable-rate mortgages are a growing portion of the mortgage-loan market, accounting for about one-fourth of all home loans nationwide, and three-fourths of subprime home loans in 2005, according to a recent report by ACORN, an advocate for low- and moderate-income families. See related story. "While foreclosure activity continues to remain slightly below historical averages, the number of properties in some stage of foreclosure from January to July has increased by 39% compared to the same period of 2005," said James Saccacio, chief executive officer of RealtyTrac, a foreclosure-tracking company, in a recent press release.
First-quarter data from the Mortgage Bankers Association shows delinquency and foreclosure rates essentially flat, and still a small portion of the overall loan market. But there's been an up-tick in late payments among borrowers with subprime credit. About 4.41% of all loans were late 30 days or more in the first quarter compared with 4.31% for the first quarter in 2005, according to MBA. That delinquency rate includes homes in the foreclosure process.
For loans held by borrowers with subprime credit, 12.02% of adjustable-rate loans were delinquent, up from 10.25% a year earlier, according to the MBA, which says its survey covers about 80% of residential mortgage loans in the U.S.
"When these people get faced with their first increased payment and their payment goes from $600 to $1,200, that's very difficult for folks to deal with," Collins said. Some borrowers "had no idea their payment was going to go up this much," he said, citing his research with focus groups of borrowers in default on their adjustable-rate mortgages.
Source: MarketWatch.com
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