Marcella White is nervous. She’s going to see her lender. Not to buy a house. To save it.
An accounting specialist for a major Chicago-based insurance company, White is eight months behind on the mortgage payments for her Richton Park home. But she’s getting a second chance, and she’s thankful.
“I wish I had done this from the beginning,” White says after her visit with Cindy Moore, a Countrywide Home Loans loss mitigation specialist dispatched from the regional office in Dallas to meet with about three dozen Chicago area residents who are in the same predicament.
“Bad things happen to good people,” explains Moore’s boss, Paula Edwards, who also traveled here from Texas several weeks ago to meet with delinquent borrowers, some of whom are only days away from losing their houses at a foreclosure sale on the courthouse steps.
Usually it’s a divorce, a lost job or a major illness that causes people to miss their house payments. But there are all kinds of scenarios.
“We hear it all,” says Edwards. “Everything from catastrophe to stupidity to bad judgment. We see people who would rather drive $800-a-month cars for status than make their house payments.
“We have people who keep coming back every three or four months. We get them current and they do the same thing again.”
But the cases “that really stick out” in Edwards’ mind “are the tragedies.”
Like the legally blind woman whose husband killed himself. Or the woman who had to wait a year for the government to pay her late husband’s death benefit.
“They pull at your heart,” says the veteran financial workout specialist. “They cry and you cry.”
Marcella White’s case is typical. The 31-year-old single mother was planning to marry the man with whom she was living. But he broke off the engagement and moved out of the house she bought almost two years ago, leaving her with all the expenses the two had been splitting down the middle.
She believes she could have managed without him.
“I could have done it,” she says as she anxiously clicks her pen. But then she laid out some money for a family reunion. And when she didn’t get it back, she found herself in a hole too deep for her to dig out by herself.
But Moore is able to rework White’s mortgage. And when she’s finished explaining the details, she tells the fidgety women in her soft Texan drawl: “As far as we’re concerned, you are totally current. You are starting fresh again.”
White isn’t alone. Last year, Countrywide, the nation’s largest independent mortgage company and also one of the largest loan servicers, was able to give 4,000 troubled homeowners a chance to start over with a clean slate. And other lenders do the same.
For example, “homeowner assistance” specialists at PNC Mortgage, the Vernon Hills-based lender, helped more than 2,000 families keep their houses in 1999.
Actually, most companies that administer mortgages on behalf of the investors who actually own the loans work feverishly to help people. It may be humanitarian, and it helps people who are in a pinch, but it also is also good business.
For one thing, they lose money when they have to take back a house. Even after a servicer sells a foreclosure to someone else and collects on all the guarantees and insurance in place to protect against defaults, the loss averages about $2,500 per house, according to industry figures.
Then there are the fees investors pay to have their loans managed. If there are no payments, there are no fees. And lenders earn more income on servicing loans than they do in originating them.
Worse, investors don’t like to use servicers who can’t get the job done.
“We want to show investors we can take care of their loans,” says Countrywide’s Edwards.
But, perhaps most important is the bad rap lenders receive when they have no choice but to foreclose.
“It’s like everything else,” says Edwards, who spent 15 years in the retail sector before joining the huge lender based in Calabassas, Calif. “Even though it’s probably (the owner’s) fault, foreclosure leaves a bitter taste, and when they talk to their friends, they say, `Don’t go to Countrywide, they’ll foreclose on you.’ “
Of the 300 seriously delinquent Chicago-area homeowners who were targeted as potential candidates for relief, only 38 responded to Countrywide’s offer. And that’s better than average.
“Ten percent is good,” according to Edwards.
Some people are “afraid to make contact because they think it brings them one step closer to the end,” she explains.
Others are “in denial. They think they’ll be able to get the money together, so they keep putting it off and putting it off.”
Sometimes they’re embarrassed, and some are even angry. But no matter what the reason, repeated letters and phone calls are ignored, and one missed payment turns into two, and then two turn into three. Then, your loan is turned over to a foreclosure attorney and the legal process that eventually takes you house away is begun. There is no other choice.
That’s exactly what happened to Marcella White: “They sent me letters and called, but I didn’t listen. I keep thinking, `It’s the same old thing.’ But then things started to accumulate and accumulate. And on top of that, I wasn’t budgeting like I should. I’m not going to blame anybody but myself.”
Michael Keller of Elgin wishes he had made contact with his lender sooner, too. Reeling from a divorce and other personal problems, Keller was 11 months behind when Countrywide finally reached him.
“I wish I had come forward earlier,” says Keller. “If I had, I probably wouldn’t have had to go through any of this.”
Actually, lenders say it’s never too early to contact them–even if you sense trouble may be on the horizon.
“If you know you’re going to have heart surgery, we can suspend your payments until you recover,” says Edwards. “But we can’t do anything if we don’t know. I’ve helped doctors, lawyers and judges. But we can’t help anyone if they don’t call.”
It’s never too late, either. The home of one of the families the Countrywide team was able to help on its most recent Chicago visit was scheduled to be auctioned in less than 48 hours. And 85 percent of the people the team members assist around the country are already in the foreclosure process.
Lenders don’t charge to help their customers get back on their feet. But if a borrower doesn’t respond soon enough, his loan is turned over to a foreclosure attorney. And once that happens, the lender can’t accept any money from you–even if you want to pay what you owe in full.
Lynn and Paul Aldape found that out the hard way. Staggered by one financial setback after another, the couple maxed out their American Express card, Paul lost his night differential at work, they had to lay out a $500 deductible after an auto accident, their 8-year-old daughter had eye surgery and Paul had knee surgery a month later. They quickly found themselves five months behind on their Chicago two-flat.
“Once you get behind, it hard to play catch-up,” says Paul ruefully. Still, the couple managed to scrape together $3,000, which they sent off to Countrywide. But the foreclosure process had already been started, so the check was returned uncashed.
They were trying to figure out what to do next when Edwards’ team called to see if the couple would be interested in a face-to-face meeting to help them save their home.
Lynn, who remembers shrieking, “Oh my God. Now what are we going to do?” when their check was sent back, jumped at the chance.
“I didn’t hesitate,” she says. “We’re thankful they called, and we’re glad to have the opportunity.” .
So what can lenders do for delinquent borrowers?
Plenty, but only if you have some money coming in and you sincerely want to keep your home. Deadbeats need not apply.
That said, here are some of the options that are available if you are in financial trouble. To determine which alternative is most appropriate, not only for the borrower but also the investor, lenders determine the true reason for your default and whether it is temporary or permanent:
– Forbearance: Under this procedure, the lender will enter into a formal repayment plan with the borrower to reinstate the loan, either by suspending or reducing the payments for up to 24 months until he can recover from his setback.
In most cases, you will be asked to begin making your regular monthly payments plus an additional amount each month until you make up what you owe. But in some cases, borrowers are permitted to make reduced monthly payments until they can get back on their feet. Or they can make full monthly payments but delay repaying the arrearage, or make gradually increasing payments.
– Modification: This is a permanent change in one or more of the borrower’s loan terms to get the payment down to an affordable amount. It is intended to help people who have suffered a financial hardship and no longer have sufficient income to sustain the original loan and make up what they owe.
The lender can lower the interest rate to make the payments more affordable, extend the time available to repay or re-amortize the balance. To make it easier to make up the missing payments, the delinquent principal, interest and escrow amount can be recapitalized into the loan amount.
– An advance: If you are less than 12 months behind on a government-insured loan, the lender can reinstate your loan by advancing funds to the investor on your behalf. In return, you must sign a note promising to pay back the allowance–without interest.
Normally, this tool is not available if the lender has already started the foreclosure process. But the lender can cancel foreclosure if your financial situation has improved enough to restart your loan. It also can be used in conjunction with a special forbearance plan.
– Deed in lieu of foreclosure: If it is evident you are unable to dig out from under the weight of your financial woes, the lender can allow you to voluntarily deed the property back to the investor (or government) in exchange for a release from all your obligations under the mortgage.
Though this disposition option results in losing your house, it is usually preferable to foreclosure because it mitigates the cost, stigma and emotional trauma that goes along with foreclosure.
In some cases, the Federal Housing Administration will even pay the borrower a $500 to $1,000 stipend to execute a deed in lieu of foreclosure.
– Short sale: Also known as a short payoff, this workout option is sometimes available when property values have declined since the borrower took out the mortgage. It allows you to sell for less than the full amount you owe.
– VA refunding: The Department of Veterans Affairs has the authority to buy loans in default from investors and take over the servicing. But it is an option on the government’s part, and not every borrower qualifies. However, the VA’s rules are said to be more lenient than the FHA’s or those of private investors.
