Can't Pay The Loan but Won't Pick Up the Phone
Home foreclosures are up, in part because of defaults on riskier subprime loans, a trend that's putting communities at risk. But, if past surveys continue to prove true, many financially troubled homeowners will never contact their lenders to work out a way to keep their homes.
Foreclosure filings, which include default and auction sale notices and bank repossessions, rose 7 percent in March from the previous month, and were up 47 percent from a year ago, according to the Web site RealtyTrac, which follows foreclosures.
California, Florida, Texas, Michigan and Ohio had the most foreclosure filings, accounting for 50 percent of the nation's total, RealtyTrac found.
RealtyTrac says that when you exclude mortgage defaults among subprime borrowers -- typically people with past credit issues -- foreclosure filings nationwide are at normal historical levels. However, if foreclosure activity continues to accelerate, we could see "widespread consequences" for all of us, RealtyTrac concluded.
Some steps have already been taken to help people in danger of losing their homes. Neighborhood Assistance Corporation of America, a housing advocacy group, said it has received funding from Citigroup and Bank of America to assist borrowers in refinancing $1 billion in mortgages. Freddie Mac and Fannie Mae, two of the nation's largest mortgage investors, announced plans that would help lenders refinance subprime mortgages held by strapped homeowners.
However, in one of my recent online discussions, several people expressed outrage at moves to assist distressed home borrowers.
"Are we really going to bail out people who are about to get foreclosed upon?" one reader asked during the chat. "Why should they get help when there are those of us who will never own homes if the prices don't come down, and they won't come down if they continue to be artificially inflated by people who couldn't afford what they bought."
The fact is, foreclosures don't just hurt the credit and spirit of the defaulted borrowers. They can impact an entire community.
"The value of surrounding homes goes down, and other homeowners will have difficulty selling or refinancing their homes, leading to further disinvestment in communities," testified Kenneth D. Wade, chief executive of NeighborWorks America, a Washington-based nonprofit, before the House Financial Services Committee.
A study by the Woodstock Institute in Chicago on foreclosed properties in that city found that each foreclosure of a conventional mortgage within a city block of a single-family home resulted in a 0.9 percent to 1.1 percent decline in property value.
It's absolutely in everyone's best interest to help borrowers facing foreclosure. In addition to asking for refinancing help, there is something borrowers themselves can do to stave off a foreclosure -- pick up the telephone and call their lenders or the companies servicing their loan to explore any loan work-out options.
But the reality is that many financially strapped homeowners don't respond to calls or letters from their lenders. An overwhelming majority of respondents in a Freddie Mac survey said they didn't call the company servicing their loan because they didn't think they had any options that could help them avoid losing their home.