Eight years after the housing market crash, millions of American homeowners are still in trouble, are non-responsive to lenders, and are in danger of losing their homes.
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. And more are on the way: foreclosure starts jumped 33% in December 2014, to about 80,000.
There are other troubling signs ahead. 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.
Stories like these show that the housing crisis is far from over for many homeowners. And while 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.
Why? There is still a large element of distrust among consumers against the mortgage industry, so that helping hand is often ignored.
Nothing puts more fear into the hearts of many homeowners than a notice in the mail from their mortgage servicer filled with language they don't understand. Upon receipt, most are paralyzed by fear until they come to us for help.
There is a particularly large amount of anxiety among minority borrowers, many of whom know neighbors, friends, and relatives who have been duped out of their homes or simply ignored or treated without respect.
So when they do 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.
But 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.
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. We counsel borrowers not to be afraid when a servicer contacts them and to work with them, and we assist them through the modification process, strengthening the relationship between borrower and servicer.
By partnering with groups like ours, mortgage lenders and servicers can improve their outreach to struggling homeowners as well as prospective new homebuyers. We understand them and you, and can serve as an olive branch to mold long term relationships.
Partnering with a nonprofit consumer group can help lenders grow their business, enhance their marketing, and improve customer experiences.
A good example of how such a partnership can work is a recent event that HomeFree-USA held with Ocwen Financial Corporation. We invited homeowners from Maryland, Washington, DC, and Northern Virginia, whose loans are serviced by Ocwen, to meet with HomeFree-USA Counselors and Ocwen Home Retention Agents to explore ways to restructure monthly payments through loan modification programs, including modifications that involve a principal reduction. The event was well attended and lasted well into the evening. HomeFree-USA hosts More Help For Homeowners (and homebuyers) events every month with lenders and servicers selected to participate.
These events do have a positive impact on local communities, particularly those hit hardest by the economic downturn. We bring hope back to struggling families and solutions many were previously unwilling to accept. We are a mediator of sorts.
Ocwen’s president and CEO Ronald Faris agrees and he has said, “We view these groups as valued partners in establishing and maintaining open and effective lines of communication with our customers.”
These events are working. Although the turnout is less than in years past, borrowers leave satisfied that all considerations were made. They are happier with the servicer and happy with our service.
A recent research report by the investment firm Morgan Stanley found that Ocwen has 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.”
That strategy, Morgan Stanley said, “appears to have been effective in keeping borrowers in their homes.” And “to the extent the [Obama] Administration wants to keep borrowers in their homes, Ocwen seems to be accomplishing that – at least for now.”
But we need more servicers to work with HomeFree-USA and other HUD approved counseling organizations. Modification solutions for borrowers with underwater mortgages must be considered. Minority homebuyers who are getting ready for sustainable homeownership must be prepared. We need to work towards reducing urban blight and helping communities of color that have been hardest hit by the mortgage crisis.
As Steve O'Connor, a senior vice president at the Mortgage Bankers Association, said, “Access to affordable credit remains one of the biggest challenges facing the mortgage market. It is critical that stakeholders collaborate in the search for solutions.”