According to a report released by the Mortgage Bankers Association, the overall mortgage delinquency rate rose from 6.35% in the first quarter of 2008 to 6.41% in the second quarter. Compared to a rate of 5.12% a year earlier, this accounts for the worst seasonally adjusted late payment rate since the organization began collecting data in 1979.
Traditionally, servicers were able to use short-term repayment or forbearance agreements to provide relief to their borrowers who were facing financial hardship. However, rising fuel and food costs – coupled with falling home values in many markets, relaxed underwriting guidelines and a severe economic downturn – have resulted in an increase in the number of homeowners who simply cannot afford their mortgage payments and are facing foreclosure.
Although this began with subprime mortgage holders, the industry is now seeing contagion among prime mortgage portfolios as well.
In response, the industry has increased its loss mitigation efforts and is using a multilayered communication approach that includes mailings, calling campaigns, text messages, e-mails and Web sites, all of which are designed specifically to attract delinquent homeowners and provide them with meaningful information.
Servicers are also changing the look of default mailings and revamping calling campaigns in an effort to increase response rates. Even with all these efforts, the number of homeowners who go to foreclosure having little to no contact with their servicer remains high.
As a result, in-person contact has become one of the best means by which servicers can connect with their borrowers. Not only does it allow servicers to make contact with a borrower base that they have typically not been able to contact, but it also gives servicers the opportunity to demonstrate the compassion and commitment that they have to helping their borrower keep his or her home.
In cases where a foreclosure notice must be served, the homeowner can be properly notified and educated about his or her options moving forward.
In-person communication
There are a number of reasons why a homeowner may not respond to a letter or call from a servicer. These reasons could include fear, believing that talking to the servicer will accelerate the foreclosure process; unfamiliarity, not realizing that servicers have tools that they can use to help the borrower through financial difficulty; or not understanding the role of the servicer.
In a survey conducted by Freddie Mac and the Roper Public Affairs and Media Institute, the surveyors found that 57% of homeowners are unaware that servicers routinely provide loss mitigation options to help them avoid foreclosure. As a result, homeowners who have no means to pay their current delinquency balances are less likely to respond to requests from their servicers.
As delinquency rates and foreclosure filings continue to set new records, more and more servicers are turning to in-person communication. While this method of communication is not new to the industry, the efforts made by providers of this service are all geared toward ensuring that attempts to contact homeowners are made at times that are more likely to result in contact with the decision-maker on the loan. This not only leads to higher contact rates, but also more meaningful contact.
In recognition of in-person contact, the American Housing Rescue & Foreclosure Prevention Act, H.R.3221 (legislation developed to help homeowners facing foreclosure keep their homes, prevent other mortgagors from facing foreclosure in the future and assist in the recovery of communities damaged by foreclosure), is appropriating $180 million to foreclosure prevention counseling and legal assistance.
The foundation of the bill is the stipulation that when servicers and counseling agencies cannot establish contact with a homeowner, third parties may be hired to provide in-person contact.
In support of the bill, U.S. Rep. Carolyn McCarthy, D-N.Y., stated, "It is so important to utilize in-person counseling and outreach. This is the only way to guarantee that families who need assistance are aware that assistance is available."
Educating delinquent homeowners
As current default and foreclosure data show, homeowners who are first-time homeowners and/or prime mortgage borrowers are falling behind on their payments, and they are generally unfamiliar with the foreclosure process. They do not understand the foreclosure prevention options that are available or the rights that they have in the process.
Often, counseling and educational efforts can mean the difference between a homeowner becoming engaged in saving his or her home and yet another foreclosure filing.
In addition to establishing contact, home retention efforts are now centered on homeowner education. The lending standards in the beginning of the decade brought a number of first-time homeowners into the market. While this was a positive step in many instances, it also meant that there was a large number of homeowners dealing with all of the financial responsibilities of a mortgage payment for the first time.
Some did not fully understand the terms of their mortgages, the significant financial differences between owning a home and renting, the role of the servicer, or the implications and impacts of foreclosure.
This education can come in many forms. Many servicers have partnered with local community organizations to host homeowner awareness seminars and foreclosure prevention efforts. Homeowners are then invited to come out and speak directly with their servicer's loss mitigation employees in an effort to find a solution to their financial situation.
While this approach has increased the comfort level of distressed homeowners, in many instances, the most effective method is to visit the property in order to provide in-person counseling.
Even if a homeowner is already in default by the time his or her mortgage servicer is able to make contact, statistics show that in most cases, loss mitigation specialists are able to find a loan workout to prevent foreclosure. Still, because of the recent housing boom, many people are in homes that they simply cannot afford.
According to the State Foreclosure Prevention Working Group, one out of five loan modifications made in the past year is currently delinquent. The high number of previously modified loans that are currently delinquent indicates that a significant number of modifications offered to homeowners have not been sustainable. It also shows that, unfortunately, not every homeowner will be able to keep his or her property.
When loss mit fails
Even when loss mitigation efforts fail, the industry needs to continue protecting the homeowner's rights by ensuring that all homeowners across the U.S. are being provided due process on a consistent basis. This includes proper notice of any foreclosure action that is initialized by the process of serving the borrower with the foreclosure/default notice face-to-face, similar to the practice that is mandated in judicial states.
Receipt and acknowledgement of the foreclosure notice is often the first time some homeowners appreciate the seriousness of the matter and seek assistance to avoid losing their home. While in-person service is not required by real estate law in nonjudicial states, the service has its advantages.
Face-to-face notice of foreclosure ensures the process is done correctly. A defective foreclosure, which is all too common, could make it difficult for homeowners to reverse the final judgment and hold up legal processes. Proper in-person communication also ensures that all borrowers have been notified so that homeowners cannot claim they did not receive the notice, nor can they hold the information back from their spouse or co-borrower.
When foreclosure notices are hand delivered, they can also be accompanied by additional information on loss mitigation, home retention and counseling alternatives. This gives the homeowner an additional opportunity to reach out to a counseling agency or his or her servicer for assistance.
Providing counseling information to the borrower at the same time as serving the notice of foreclosure is not only a practice that many servicers and lenders have adopted, but it also acts a final wakeup call for the homeowner to actively address his or her situation.
The entire industry – lenders, servicers and the governing bodies – are all in support of extending face-to-face communication to help struggling homeowners find their best alternatives. The American Housing Rescue & Foreclosure Prevention Act is committed to a three-year program, which began Oct. 1. (The funds will not be paid by taxpayers, but by grants from the Neighborhood Reinvestment Corp.)
Efforts like this, combined with those of the servicers and lenders in both judicial and nonjudicial states, will help to prevent foreclosures and, in turn, strengthen the economy and break out of the industry's downward spiral.
Patrick Carey is the CEO of Titanium Holdings Inc., the holding company for Titanium Solutions, which provides homeowner contact and counseling services through a network of home retention consultants. He can be reached at pcarey@titaniuminc.com. Vic Draper is the executive vice president of sales and marketing for ProVest, a firm specializing in legal document delivery. He can be reached at victor.draper@provest.us.
