Topic: Mortgage News
McLEAN, Va. -- Dec. 16, 2005 -- The first step in helping homeowners avoid foreclosure is to understand the problem. To do that, Freddie Mac conducted a survey and found that nearly two-thirds of delinquent borrowers don't know they will be offered help simply by contacting their lender and asking for it. In over half of al foreclosure cases, the borrowers never contact their lender, and the survey was undertaken to help find out why.
The survey found that 75 percent of the delinquent borrowers surveyed recall being contacted by their mortgage servicers. But, a substantial percentage gave a variety of reasons for neglecting to follow-up with their servicers to discuss workout options. Mortgage servicers collect monthly housing payments on behalf of Freddie Mac or other investors.
Specifically, 28 percent said there was no reason to talk to their servicers or that their servicers could not help them, 17 percent said they could take care of their payment problems without any help, and 7 percent said they didn't call because they didn't have enough money to make the payment. Other reasons for not calling included embarrassment (6 percent), fear (5 percent) or not knowing whom to call (5 percent).
The lack of borrower follow-up may help explain why more than six in 10 (61 percent) of late-paying borrowers said they were unaware of a variety of workout options that could help them overcome short-term financial difficulties. At the same time, 92 percent said they would have talked to their servicers had they known these options were available to them.
The survey found no significant statistical difference in the responses given by white, black, Latino, male or female borrowers indicating an almost universal need for more borrower education about workout options and foreclosure avoidance.
Freddie Mac requires mortgage servicers to explore several workout options with late-paying borrowers. These options include forbearance, which temporarily delays or reduces payments, and loan modifications, which can restructure the payment terms for a fixed period. Many servicers typically describe these options in their collection letters. However, it is up to borrowers to follow-up with their servicers to learn more about these options.
"Part of the problem is that the data shows that there's a knowledge gap: People's interest in the options available to them is quite high, but their awareness of these options is quite low," says Elizabeth Armet, Vice President, Senior Account Executive at Roper Public Affairs.
While the likelihood of a successful foreclosure avoidance depends upon each individual borrower's financial situation, a 2004 Freddie Mac study concluded that repayment plans could lower the probability of home loss by 80 percent among all borrowers, and by 68 percent among low-to-moderate income borrowers.
Other notable findings from the Freddie Mac/Roper survey:
• Eighty percent of delinquent borrower households included at least one employed individual and only five percent said someone in their household was unemployed. Seven percent of the respondents said they were retired.
• Among homeowners in good standing, 62 percent were employed, 32 percent were retired, and only two percent were unemployed.
• Delinquent borrowers earned slightly less than borrowers in good standing. The median annual income among delinquent borrowers was $52,400 compared to $56,700 a year for homeowners in good standing.
• Forty seven percent of the defaulters were first-time homeowners but 62 percent of the homeowners in good standing had owned a home in the past.
? 2005 FLORIDA ASSOCIATION OF REALTORS?
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