On the Phone With the Home in The Balance
From Faith Etheridge's tidy office in Frederick, you can see the national foreclosure crisis unfold. And, sometimes, you can see a particular foreclosure stopped.
Etheridge works with troubled borrowers who ask for help from the nonprofit Consumer Credit Counseling Services. Last week, she allowed me to sit in one of those sessions.
The Arizona homeowner, whose permission I had to listen in on the call and whose identity I promised to keep confidential, doesn't have an exotic mortgage. It's a 30-year, fixed-rate loan through the Federal Housing Administration on a modest home. She has a government job, but her husband has been out of work since late October. "They told him that due to the housing industry they had to lay him off," the woman told Etheridge. "I've just been finding it difficult to catch up on my mortgage payment."
She's already incurred a late fee in November, and it's going to be another couple of weeks before she makes the December payment. Together, that will be $120 wasted on penalties. That's how a budget problem can balloon into a lost home. Late fees will kick in if you don't pay by mid-month. Once a new month starts, the loan will officially be delinquent. It becomes all too easy to start missing payments entirely.
President Bush announced a plan Thursday that would allow some adjustable-rate borrowers to ask for a five-year interest-rate freeze. That plan may help settle financial markets, but it won't help homeowners who are still trying to come up with the mortgage payment that was due Dec. 1. In fact, those who have missed payments won't be eligible for that relief.
However, some struggling homeowners in a number of states, including Maryland and Virginia, may be eligible for a cash grant of up to $5,000 that can help them avoid foreclosure. The PHASES program, which stands for Preserving Homeownership and Savings Education Strategy, has no income restriction and is not limited any particular lender. The first step toward getting such a grant is a conversation with someone like Etheridge.
Etheridge asked the Arizona borrower if she was behind on any credit cards. "No, I'm not behind on those yet," the woman said. "One of my main goals is not to get behind on them."
When Etheridge asked what other financial goals the woman had, the woman told her she wants to save about two months' worth of expenses. "Absolutely, that's an excellent goal," Etheridge said. Her tone remained quiet, professional and positive throughout the conversation.
After reciting some boilerplate language about confidentiality and the need to talk to a lawyer for advice about things such as bankruptcy, Etheridge began building a picture of the woman's finances. First, Etheridge asked about income. Including her husband's unemployment benefits, which started just a few weeks ago, the woman said they're bringing in a net income of $2,693 per month.
Then came a far longer series of questions about expenses. The biggest bill, the mortgage, costs $857 per month. The payment includes property taxes and homeowners insurance. They don't pay a homeowners association fee.
One by one, Etheridge asked for monthly spending estimates. Car payment, workday lunches, oil changes, medical co-pays, cellphones, pet care, haircuts and even hair-styling products. The two women matter-of-factly made a budget. Etheridge probed for areas where expenses might be cut. Did she plan family meals before grocery shopping? Did she shop with a list? Did the family eat out often?
Etheridge asked the woman to estimate the value of her home and car. Then she asked the woman's permission to pull a credit report, without charge.