Some struggling homeowners find way to dodge foreclosure
Each time she came home, she feared the worst: a padlock on her door and a sign declaring her home in foreclosure. She was months behind on her adjustable-rate mortgage, which she'd become unable to pay as the rate climbed from 7% in 2004 to 12% this year. Her three-bedroom house, she was told, would be auctioned on July
At night, Margaret Jones would lie in bed, unable to sleep, her heart galloping.
Each time she came home, she feared the worst: a padlock on her door and a sign declaring her home in foreclosure. She was months behind on her adjustable-rate mortgage, which she'd become unable to pay as the rate climbed from 7% in 2004 to 12% this year. Her three-bedroom house, she was told, would be auctioned on July 1.
"My blood pressure was through the roof," says Jones, 45, a nurse in North Lauderdale, Fla. "I can see why some people commit suicide. You just want it to go away."
But the worst never happened. Rescued by a hardship loan and a mortgage-modification plan, Jones managed to stave off foreclosure and save her house.
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Though the number of homeowners facing or going through foreclosure has surged - filings rose 55% from July 2007 to July this year - thousands of other homeowners on the verge of losing their homes are finding last-minute ways to ward off foreclosure. These tales have become the little-known success stories of the worst housing slump in decades. For a smattering of today's distressed homeowners, last-ditch remedies intended to stem the damage have saved the day.
Jones took out a $26,000 hardship loan from her 401(k) to pay off much of what she owed. She also managed to get her mortgage modified by calling a hotline for a credit-counseling organization, Money Management International. (The agency is part of the Homeownership Preservation Foundation, which oversees counselors and runs a hotline with Hope Now, an industry-sponsored alliance to help troubled homeowners.)
Jones' monthly mortgage bill dropped from $3,000 to about $1,800, and her interest rate is down to a fixed rate of 7.4%. She'll pay her first lower monthly payment in October.
"Now, I have peace of mind," says Jones, a mother of five whose husband, Deryck, is unemployed. "I can eat. I'm no longer afraid of the knock on the door or the sign on the front lawn. It's changed me. Now, I will send my payments in ahead of time. I may lose my water, my light, but I won't lose the roof over my head."
Those who have managed to save their homes remain a small fraction of people at risk of losing their properties. One in every 464 U.S. households received a foreclosure filing in July, according to RealtyTrac. More than 2.2 million foreclosure filings were reported during 2007, up 75% from 2006. The number of homes in some stage of foreclosure was up 79%, indicating that some properties may have just entered the initial stage in 2007 and could be completing the foreclosure process in 2008.
Still, the number who have benefited from assistance programs is believed to reach into the hundreds of thousands. Hope Now says it completed more than 181,000 mortgage workouts in June alone for loans that would otherwise have gone into foreclosure.
In the second quarter of 2008, mortgage servicers finished more than 522,000 workouts. That doesn't include homeowners who have worked out loan modifications on their own with lenders or those who received counseling or financial aid from charitable groups that aren't part of the alliance.
Some of the options that have helped distressed homeowners include:
--Lenders agreeing to repayment plans for homeowners behind on their mortgage. The lenders might, for example, agree to tack delinquent payments onto the end of a home loan.
--Lenders changing from an adjustable rate to a lower fixed rate. Many borrowers have taken on subprime loans, which go to those with shaky credit. Those loans often carry rates that increase after an initial fixed rate, and borrowers have frequently fallen behind when the payments rise. About 14% of subprime loans are in default, according to the Center for Responsible Lending.
--Lenders have also allowed some borrowers to temporarily pay less than the full amount of their monthly payment. This is a rarer option. It's usually done in cases of an unexpected financial emergency, such as a health crisis.
But research shows that a majority of homeowners on the financial precipice don't know all the options available to them to stave off foreclosure. Fifty-seven percent of borrowers who are late on their mortgage payments are unaware of foreclosure alternatives offered by their lenders, according to a survey by Freddie Mac and marketing research firm Roper Public Affairs & Media. That represents a slight improvement from 2005, when the survey found that 61% of delinquent borrowers didn't know their mortgage lender offered workout options.
Some lenders say that rescuing a homeowner from foreclosure isn't always a possibility, though there are cases where it can work. Russell Izzo, chief operating officer at the American Modification Agency in Uniondale, N.Y., says, "Options are limited but greater than many understand."
His company represents borrowers in renegotiating the terms of mortgage loans. "Some lenders are friendly, and some are more adversarial," Izzo notes.
While some critics might consider assistance for distressed homeowners an unjustified bailout, Izzo says many of those facing foreclosure have simply met bad luck or made one-time financial mistakes.
"They're honest, tax-paying people," he says. "These are not the overreaching speculator. Some may have gotten sick or lost a job."
At Mortgage Network, a Danvers, Mass.-based independent mortgage company, some customers are so overjoyed at loan modifications that they've sent bottles of wine or thank-you cards. "We look at each deal individually," says Brian Koss, managing director of Mortgage Network. Lenders are willing to work out modifications, he says, because, "You can't carry too many bad loans.
"If people can sit down, and we can look at them as people and find some middle ground, it can be worked out," Koss says.
That's what happened for Benjamin MacArthur, 46, of Burke, Vt., who suffered severe injuries in a car accident in February 2006. MacArthur, who owned a property management company, was barely able to work after the accident, and his wife was unemployed. They soon fell behind on their mortgage payments.
In 2008, he and his wife divorced and decided to sell their home. They listed their 56-acre farm house at $315,000, below its appraised value of $360,000, but couldn't sell it in the depressed housing climate. They feared they would soon face foreclosure, which, among other things, would mar their credit records.
But Mortgage Network agreed to work with them to avoid a foreclosure. In the spring of this year, Mortgage Network agreed to take "a deed in lieu of foreclosure." In doing so, the MacArthurs signed the house over to the bank and were able to walk away. The lender forgave all unpaid debt.
"I was shocked - we don't have a foreclosure on our credit," says MacArthur, who now lives with his girlfriend and golden retriever, Bo. "It was a great relief. They came and sat with us personally at our dining room table to work things out. We didn't want to have to go through foreclosure, and we didn't have to."
Even so, for the majority of homeowners facing foreclosure, efforts to save properties from bank takeovers are typically met with frustration, with many lenders remaining reluctant to renegotiate mortgages. Some lenders are simply overwhelmed with requests. Sometimes, loans have been resold, and borrowers struggle to find the right contact to initiate any negotiations.
In other cases, home buyers have gotten so far over their heads that there's no realistic way to bail them out. Some economists and advocacy groups argue that current assistance programs aren't nearly enough to help the legions of homeowners in trouble.
"Hope Now has been helpful, but it's getting completely overwhelmed by the magnitude of the problem," says Mark Zandi, chief economist of Moody's Economy.com.
Getting a lift
Jess Alfaro didn't know where to go. Like tens of thousands of homeowners hit by the devastating housing slump, Alfaro had fallen behind on his mortgage payments and was facing possible foreclosure.
His situation seemed bleak. In September of last year, Alfaro, 45, of Pueblo, Colo., was earning barely $500 a month doing odd jobs such as landscaping and stucco repair, and his wife, Della, was on disability. The couple scrimped to make their $660 monthly mortgage, living on Ramen noodles, rice and beans.
They had lived in their three-bedroom house for 19 years, raised three children, and enjoyed their fenced yard with abundant room for their two pit bulls. They didn't want to leave.
He called his local Catholic Charities for help. (Catholic Charities USA is a private network of more than 1,700 Catholic social service agencies and institutions nationwide.) Counselors at Catholic Charities of Pueblo spoke with his mortgage company, which agreed to add the unpaid mortgage payments to the end of his mortgage. Alfaro also found a higher-paying job as a school custodian.
A year ago, the family was on the brink of foreclosure. Today, they're up to date on their mortgage and other bills.
"We were in danger of losing our house, and we were stressed out," Alfaro says. "My wife was crying a lot and not sleeping, but I never gave up. Now, there's a big calm in our house. We're getting along better, we're a lot less stressed about money, and we even bought some odds and ends for the house. I am living my life so peaceful and happy now."
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