Delinquent Borrowers Unaware of Options

Freddie Mac - along with Roper Public Affairs and Media, a leading international market research firm - announced the results of the nation’s first ever survey to learn why more late-paying borrowers risk losing their homes, as opposed to reaching out to their mortgage servicers for assistance. Findings showed that home owners never contact their lender in over half of all foreclosure cases. The survey was undertaken to answer one simple question: why?

The report discovered that 75% of those in delinquency recall being contacted by their servicers. However, a substantial percentage gave a variety of reasons for neglecting to follow-up with their lenders to discuss workout options.

In-depth findings related to deliquent home loans

Here are some specific results of the survey:

• 28% said there was no reason to talk to their servicers or that their servicers could not help them
• 17% said they could take care of their payment problems without any help
• 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%), fear (5%), or not knowing who to call (5%)

The lack of borrower follow-up may help explain why 61 % of late-paying borrowers said they were unaware of a variety of workout options that could help them overcome short-term financial difficulties. Meanwhile, 92% said they would have talked to their servicers had they known these options were available to them.

There were 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 owners of this nature. 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.

“The results of the Freddie Mac/Roper survey are a wake-up call to delinquent borrowers everywhere,” said Ingrid Beckles, Freddie Mac’s Vice President of Default Asset Management. “Its message is clear: when you get a phone call or letter from your servicer, don’t ignore it, act on it. Pick up the phone, call your servicer and talk to them about the possibility of forbearance or some other repayment alternative because it just may be your best chance to avoid foreclosure.”

Can foreclosures really be avoided?

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% among all borrowers and by 68% among low-to-moderate income borrowers. Working together, Freddie Mac and its servicers have helped more than 100,000 troubled borrowers avoid foreclosure and stay in their homes over the past two years.

“These findings are consistent with what Wells Fargo Home Mortgage has done and the great success we have had during the past several years with our early intervention process,” said Patrick Carey, senior vice president, WFHM Default and Retention Operations.

“The Freddie Mac/Roper survey underscores why we work so hard to encourage borrowers experiencing financial difficulty to proactively contact their lender and explore the options that could help them avoid foreclosure,” added Deb Oakley, Senior Vice President at National City Mortgage.

Other notable findings from the Freddie Mac/Roper survey included:

• 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% were employed, 32% 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% of the homeowners in good standing had owned a home in the past.

The overall message remains clear: know your options. As new costs are involved in the process of bankruptcy filing and more and more individuals are in need of assistance in order to maintain payments on their Florida home loan, it’s easy to lose hope. Remain aware, however, that many lenders and mortgage services can offer help before it’s too late.