Fighting to Keep the Roof
Sunday, May 6, 2007
Ernestine Witherspoon managed to hang onto her house in Northeast Washington even after she lost her job and fell far behind on her mortgage payments.
Her lender, Countrywide Home Loans, was weeks away from seizing the house when Witherspoon called, explained her situation, and worked out a plan to repay the $9,800 she owed. She scraped together $3,600 -- only because she landed a new job -- and Countrywide then tacked $25 onto her monthly payments for the life of the loan to make up the difference.
"I was treated well," said Witherspoon, 51, a secretary at a Maryland hospital. "But when you are in the position I was in, you have no choice but to accept the lender's terms if you want to keep your property, and that makes you feel very, very vulnerable."
Witherspoon benefited from the increasing willingness of lenders to help troubled borrowers stay in their homes. After easing lending standards in recent years, mortgage companies are facing a rising tide of late payments and defaults, driven by subprime borrowers with blemished credit or other factors that make them a risk to lenders. More than two dozen subprime lenders have shut down, and the rest of the industry is seeking ways to limit the damage.
"We would much rather work with a borrower than go through the foreclosure process," said Steve Bailey, Countrywide's senior managing director of loan administration. "We lose money on a foreclosure, the borrower is out of their home, and nobody is happy. The math works against us."
The lenders' new leniency works in favor of some borrowers. But to take advantage, homeowners have to move quickly, even if calling a mortgage company seems intimidating or stressful. Many people facing foreclosure simply "shut down" out of fear, says J. Michael Collins, a housing specialist with PolicyLab Consulting Group in Ithaca, N.Y.
"The more stressed people are, the less they're willing to seek help and the less they feel that lenders are helpful," he said.
If homeowners can overcome their anxiety and act soon enough, they have more options that can help avoid foreclosure. Those include refinancing the house, altering the terms of the original loan, filing for bankruptcy protection or even selling the house at a loss. But borrowers lose leverage, credibility and precious time when they try to dodge the lender, as more than half of them do in foreclosure cases, according to a survey by Freddie Mac, one of the largest investors in U.S. mortgages.
"As soon as you see trouble coming, that's the time to take action," said Ric Edelman, a financial planner in Fairfax.
The Equity Factor
If you're a financially troubled borrower, there are a few steps you should consider before contacting your mortgage company, especially if you have not missed a payment. Think about refinancing or taking out a home-equity loan, if you have equity in the property.
If refinancing won't work, identify every opportunity to raise cash. Sell your childhood toy collection on eBay. Rent out a room. Seek help from your church. "Do whatever it takes to raise money. You don't want to tell a creditor that you're having a problem if you can avoid it," especially if all you need is a one-time fix, Edelman said.
Telling a lender about your financial woes could put you at a disadvantage if you have equity in your home, said Jack Guttentag, professor of finance emeritus at the University of Pennsylvania's Wharton School and author of the Mortgage Professor column.