Behind on Payments? It’s Time to Call Lender
For 37 years, Bill Kress successfully ran the seafood business he started after returning home from the Korean War. Then the Bayville, N.J., resident began to have problems.
First, a business expansion didn’t go as planned and a construction loan went into foreclosure. Next, his wife Maryanne suffered a stroke. And then Bill had an operation that ultimately forced him to go on disability.
Living on Medicare, home-heating grants and other assistance programs, Kress tried to increase his cash flow by refinancing the mortgage on the house the couple inherited from Maryanne’s mother. But because of the earlier foreclosure, he was turned down.
Fortunately, Kress’ lender, the Ulster Savings Bank in Kingston, N.Y., suggested that he seek to have the terms of the loan modified as a special hardship case. He did, and the rest, as they say, is history.
“They were terrific,” Kress says of the loan workout specialists at Freddie Mac, the government-chartered secondary-market firm that controlled his mortgage. “They didn’t fool around or hesitate.”
Freddie Mac agreed to rewrite the loan, reducing the monthly payment by more than $140. And because the new payment covers several tax and insurance bills Kress was paying separately, he figures he’s saving more than $300 a month.
“Without Freddie Mac’s help, we would never have been able to make it,” he said. “We were down to the part where we were scratching our heads about what we were going to do next. Now we can put some food on the table.”
Bill and Maryanne Kress remain homeowners today because they contacted their lender as soon as they realized they were in over their heads. Most folks aren’t as candid. Instead, they bury their heads in the sand, hoping their lenders won’t realize they’re “only” one or two payments behind and praying they’ll be able to catch up before the lender knocks on the door.
That strategy usually doesn’t work. More and more lenders use computer programs to quickly identify borrowers most likely to go into default, so collectors can concentrate their efforts on them.
Lenders also are moving to foreclosure much more quickly. At Freddie Mac, which has a portfolio of 8 million loans, the time between the first late payment and taking back a property has been cut by 60 days since the big secondary mortgage-market firm decided a couple of years ago to pursue costly delinquencies more diligently.
Another point: The more payments you miss, the more difficult it is to catch up.
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Homeowners who are behind in their mortgages usually are late paying other bills too. Consequently, most are often so overwhelmed by calls from creditors that they refuse to answer the phone or return messages. And as a result, many are eventually sucked under.
But it doesn’t have to be that way, not if you call your lender at the first sign of trouble. More than ever, lenders are bending over backward to keep people in their homes.
“Lenders are very concerned with portfolio run-off, so they’re working very hard to retain borrowers,” says Phil Comeau, vice president of nonperforming loans at Freddie Mac. “They’d rather keep borrowers than lose them.”
The reason, of course, is money. A foreclosure is a financial disaster for lenders as well as for borrowers. Freddie Mac has one of the highest recovery rates in the business, according to Comeau, but it still loses an average of $18,000 on every foreclosure. If the company can manage to keep nonpayers in their homes until they can get back on their feet, though, it can cut its losses to only about $5,000 per case.
Lenders won’t be able to work with everybody. There’s nothing they can do for people who are habitually late, for example. Deadbeats need not apply, either. So if you can pay but won’t, don’t bother.
But if you are a “deserving borrower,” your lender may be able to help you over the hump. Deserving borrowers are those who are cooperative and make their payments regularly and on time. They can be people who, through no fault of their own, have lost all or part of their incomes because of, among other things, serious illness, short-term disability, death in the family, divorce, unemployment or a mandatory pay reduction.
You may also be considered deserving if you’ve experienced an unavoidable increase in expenses because of an illness, damage to the property or an unanticipated maintenance problem that, if not corrected, could affect the value of your house.
If you fit into any of these categories, your lender has a number of options available. You may be allowed to:
* Catch up on missed payments by resuming your regular payments plus an additional agreed-upon amount until you are current.
* Reduce or even suspend your payments for a specific period, usually no longer than 18 months. After that, you’ll have to begin making regular payments again as well as an additional amount toward the delinquency at scheduled intervals.
* Modify the terms of your loan. For example, the lender may reduce the interest rate to make payments more manageable. Or the lender might agree to extend the loan several years.
Unfortunately, not everyone who experiences an “involuntary inability to pay” will be able to keep his home. But if your lender determines that you can’t make it, at least he can make it easier for you to move out and avoid foreclosure and the risk of a deficiency judgment or further damage to your credit standing.
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For example, you may be given additional time to sell the property and pay off what you owe. If it’s doubtful you can sell the place for enough to repay the loan, the lender may even be willing to accept less than what you owe. Or you may be permitted to let someone take over what otherwise would not be an assumable loan.
If all else fails, your lender might just let you hand over the keys to the house. This will save the lender the cost of foreclosing and relieve you of any further liability.
Remember, though, lenders take a dim view of chronic offenders, so you’ll probably get only one bite of the apple. “We’d have to take a hard look if someone came back a second time,” Comeau said. “There would need to be some pretty extenuating circumstances.”
No Way to Pay? It’s Time to Call
At any given time, roughly 2 million households are 30 days late on their mortgages. That’s a lot of borrowers. But it’s no big deal to most lenders, according to David Lereah, chief economist at the Mortgage Bankers Assn., who says, “Everyone misses a payment now and then.”
When delinquencies reach the 60-day point, however, they become serious. At last report, roughly 655,000 homeowners were at least two months behind. Add to that the 180,000 or so people at the various stages of foreclosure, and about 835,000 are in deep trouble.
So when do you call your lender for help? According to Lereah, when you miss one payment and have no chance of making a second, it’s time to get on the horn.
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Lew Sichelman is a syndicated real estate columnist. He can be contacted via e-mail at LSichelman@aol.com. Distributed by United Feature Syndicate.
