Eight years after the housing market crash, and amid positive housing reports for 2015, millions of American homeowners are still in trouble, are non-responsive to lenders, and are in danger of losing their homes.
HUD-approved housing counselors and nonprofit consumer groups can be an important bridge to connect borrowers with their loan servicers and help them to understand one another. Borrowers are counseled to not be afraid when a servicer contacts them and to work with them, and are assisted throughout the modification process, strengthening the relationship between borrower and servicer. Servicers should engage with HUD-approved counseling organizations to help reach distressed borrowers and explore options that can keep them in their homes.
More than half of the three million or so home equity lines of credit that are scheduled to reset over the next three years are on properties that are seriously underwater, according to RealtyTrac. That means we could be headed for a new round of defaults, as many borrowers won’t be able to make the higher payments.
Loan modifications rose 12% in December 2014 to 37,000, while foreclosure sales increased 4% to 29,000, according to Hope Now, a private-sector alliance of mortgage servicers, investors, insurers and nonprofit counselors. More are on the way: foreclosure starts jumped 33% in December 2014, to about 80,000.
These statistics show that the housing crisis is far from over for many homeowners. Though many mortgage servicers have been willing to offer help to struggling homeowners through loan modifications and other debt-relief programs, that message is often still not getting through, thanks to lingering distrust of the mortgage industry among consumers. There is a particularly large amount of anxiety among minority borrowers, many of whom know neighbors, friends, and relatives who feel they have been duped out of their homes or simply ignored or treated without respect.
So, when they get a notice from a servicer, their first reaction is that they did something wrong and that someone is trying to take their house away. Too often the borrowers' interpretation of their circumstances and the servicers' interpretation are totally different. Borrowers react out of anger and fear and don’t respond, possibly cutting off a much-needed lifeline.
Not all servicers are the same, especially for struggling borrowers with subprime mortgages. Many servicers, in fact, are willing and able to modify mortgages to help borrowers save their homes. It’s just a matter of getting that message through.
For instance, Ocwen Financial Corporation has partnered with at least one HUD-approved nonprofit consumer group to explore ways to help borrowers restructure monthly payments through loan modification programs, including modifications that involve a principal reduction.
Ocwen was recently called out, in a research report from the investment firm Morgan Stanley, for having been “far more likely to give a borrower a principal modification than the market as a whole,” and “far more likely to cut a borrower’s monthly P&I payment by 50% or more,” a departure from many of the stories for which the servicer has been in the news in the past few months. That strategy, Morgan Stanley said of Ocwen’s attempts to work with borrowers, “appears to have been effective in keeping borrowers in their homes.”
While there are many partnerships in the affordable housing arena, the mortgage business needs to see more of them, not only to help deal with the problems of the past, but to build new opportunities going forward. All of us must come together to reset our financial clocks. It's about more business, stronger people and a collaborative industry.
Marcia Griffin is founder and president of HomeFree-USA.