A Rescue Plan for Strapped Homeowners

Shannon Scarrott is nervous. She’s going to see her lender. Not to buy a house. To save it.

An office manager for an optical company who also does some accounting work on the side, Scarrott is four months behind on the mortgage payments for her Van Nuys home. But she’s getting a second chance, thanks to the efforts of Countrywide Home Loans. And she’s grateful.

“I’m so happy. If I didn’t have this, I don’t know what I would have done. This takes the pressure off,” says the single mother of two after her visit with Paula Edwards, a Countrywide loss mitigation specialist dispatched from the regional office in Dallas to meet with about three dozen Southland residents who are in the same predicament as Scarrott.

Some are only days away from losing their houses at a foreclosure sale on the courthouse steps.

“Bad things happen to good people,” explains Edwards. Usually, it’s a divorce, a lost job or a major illness that causes people to miss their house payments. But there are all kinds of scenarios.

“We hear it all,” Edwards says. “Everything from catastrophe to stupidity to bad judgment. We see people who would rather drive $800-a-month cars for status than make their house payments. We have people who keep coming back every three or four months. We get them current and they do the same thing again.”

But the cases “that really stick out” in Edwards’ mind “are the tragedies.” Like the blind woman whose husband killed himself. Or the woman who had to wait a year for the government to pay her late husband’s death benefit.

“They pull at your heart,” says the veteran loan-workout specialist. “They cry, and you cry.”

By those standards, Scarrott’s case is rather typical. Her first two years of homeownership were uneventful. But things started to unravel this summer. Because she had no one to watch her 5-year-old daughter, she had to put her in a $600-a-month private school. Then a relative borrowed “a bunch” of money that still hasn’t been paid back. And before she knew it, “I got myself into a real pickle.”

But Edwards is able to bring Scarrott’s government-insured mortgage current by turning what she owes into a no-interest, no-payment second lien that doesn’t have to be paid off until she sells or refinances. And when Edwards is finished explaining the details, she tells the edgy borrower in her soft Texas drawl: “As far as we’re concerned, you are totally current. You are starting fresh again.”

Scarrott isn’t alone. Last year, Countrywide, not only the nation’s largest independent mortgage company but also one of the largest loan servicers, was able to give 4,000 troubled homeowners a chance to start over with a clean slate. And other lenders do the same. For example, “homeowner assistance” specialists at PNC Mortgage, the big Vernon Hills-based lender, helped more than 2,000 families keep their houses in 1999.

Actually, most companies that administer mortgages on behalf of the investors who actually own the loans work feverishly to help people. Not because they are great humanitarians, although benevolence certainly has something to do with it. Rather, it’s simply good business.

For one thing, they lose money when they have to take back a house. Even after a servicer sells a foreclosure to someone else and collects on all the guarantees and insurance in place to protect against defaults, the loss averages about $2,500 per house, according to industry figures.

Then there are fees investors pay to have their loans managed on their behalf. If there are no payments, there are no fees. And lenders earn more income on servicing loans than they do in originating them.

Worse, investors don’t like to use servicers who can’t get the job done.

“We want to show investors we can take care of their loans,” says Edwards.

But perhaps most important is the bad rap lenders receive when they have no other choice but to foreclose.

“It’s like everything else,” says Edwards, who spent 15 years in the retail sector before joining the huge Calabasas-based lender. “Even though it’s probably (the owner’s) fault, foreclosure leaves a bitter taste, and when they talk to their friends, they say, ‘Don’t go to Countrywide, they’ll foreclose on you.’ ”

First-time owners Alma and Hector Ruvalcava of Arleta had been in the foreclosure process once before. But they made double payments to catch up.

“It was hard but we did it,” says Alma, a computer assembler.

Then hard times hit again this summer. Hector’s father took ill in Mexico, so the couple helped with the bills. Then he exceeded the mileage allowance on his car lease and that, says Alma, “got us behind on everything. I never thought it would happen to us again, but it did.”

They tried to catch up several times but couldn’t. Then they received a hand-addressed envelope from Countrywide. Inside was a brochure explaining that help could be just a phone call away. They jumped at the chance.

“Saving our home was important for our kids,” says Alma.

Joseph and Patricia King seemed like they were “always playing catch-up,” too. Hoping to keep their extended family intact when Joe’s mother died three years ago, they took in the four nieces and nephews Mom had been caring for. That proved to be a “budget-buster” for the Palmdale couple, who had two kids of their own.

They took out a second mortgage, but that put “an even bigger strain” on them. Then they tried to refinance, but “no one would touch us” because they didn’t have a history of 12 consecutive months of on-time payments.

They never thought to approach Countrywide, thinking that because no other lender wanted to help, their own lender wouldn’t, either. But then the company called from Texas with an offer to start over again.

“I feel like a burden’s been lifted,” says Joe, who was so concerned about being on time for his 9:30 a.m. appointment, he showed up at 6:30. “Now we’re able to start all over again.”

Edwards is impressed. “Bless their heart,” she says, explaining that the hard part isn’t helping borrowers, it’s getting them to help themselves by contacting their lender when they first get into trouble.

Most people don’t. In fact, of the 256 seriously delinquent Southland homeowners who were targeted as potential candidates for relief, only 34 responded to Countywide’s offer. And that’s better than average.

“Ten percent is good,” according to Edwards.

Some people are “afraid to make contact because they think it brings them one step closer to the end,” she explains. Others are “in denial. They think they’ll be able to get the money together, so they keep putting it off and putting it off.”

Sometimes they’re embarrassed, and some are even angry. But no matter what the reason, repeated letters and phone calls are ignored, and one missed payment turns into two, then two turn into three and before you know it, you’re looking down a long, dark hole.

Scarrott was one of those people, too.

“I put on blinders,” she admits. When Countrywide called, “I thought they were contacting me to harass me. I thought, ‘Oh no, they’re going to tell me this is it.’ ”

Actually, though, lenders say it’s never too early to contact them. Even if you sense trouble may be on the horizon, call.

“If you know you’re going to have heart surgery, we can suspend your payments until you recover,” says Edwards. “But we can’t do anything if we don’t know. I’ve helped doctors, lawyers and judges. But we can’t help anyone if they don’t call.”

It’s never too late, either. The home of one of the families the Countrywide team was able to help on a recent field trip to Chicago was scheduled to be auctioned to the highest bidder in less than 48 hours. And 85% of the people they assist around the country are already in the foreclosure process.

Lenders don’t charge to help their customers get back on their feet. But if a borrower doesn’t respond soon enough, the loan is turned over to a foreclosure attorney. There is no other choice.

So what can lenders like Countrywide do for delinquent borrowers? Plenty, but only if they have some money coming in and they sincerely want to keep their home. Deadbeats need not apply.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Call Lender for Help

For assistance, delinquent borrowers should contact their mortgage lender. Countywide mortgage holders can call (800) 222-9944. *

Lew Sichelman’s weekly housing column is syndicated to newspapers throughout the country.