From USA Today:
On the front lines in the mortgage foreclosure crisis, lender and loan servicer Dennis Lauria says his deepest losses are from borrowers who owe more than their homes are worth and simply mail in the keys, rather than try to work out a new payment plan.
“I can’t get you to pay if you’ve got no skin in the game,” says Lauria, senior vice president of Popular Mortgage Servicing in Cherry Hill, N.J., who says 14% of his customers with subprime loans — high-interest loans given to people with poor credit ratings — are in default.
Nearly 3 million homeowners were behind on their mortgages at the end of last year, the Mortgage Bankers Association (MBA) said last week. An additional 1 million-plus borrowers were at risk of imminent foreclosure. The number of foreclosures is likely to set records throughout the year and poses an increasing risk to the housing market, the financial markets and the economy.
Federal Reserve Chairman Ben Bernanke says the mortgage industry needs a “vigorous” response to help beleaguered homeowners. But what about the response — or lack of one — from borrowers?
Nationwide, more than half the borrowers who lose their homes through foreclosure never answered their lenders’ calls or letters, according to Freddie Mac. And an MBA analysis found that 23% of loans in foreclosure last fall were to homeowners who had no contact with their lenders, and that an additional 18% were to absentee owners.
The numbers help explain why it’s so difficult to reverse the trends of rising foreclosures and falling property values. Even some homeowners who can afford to pay their mortgages are defaulting, Lauria says, because their house might have lost 30% of its value, and they figure it will be a long time before it’s worth what they paid for it.
“They say, ‘If I play my cards right, I can live here free for 12 months, maybe longer’ ” before the lender can foreclose, Lauria says. “Our challenge isn’t contacting the borrower. I can talk to them, but they stick their tongue out at me.”
There are many reasons homeowners behind on their mortgages fail to contact their lenders, mortgage specialists say. Some don’t believe their lenders can help them. Others fear it will only speed the foreclosure process. And some don’t call because they simply don’t have money to give the lender, according to surveys by Wells Fargo and Freddie Mac.
“It’s (lenders’) own fault that borrowers won’t answer their calls,” says Todd Buckner, CEO of National Housing Solutions, a for-profit mediator between borrowers and lenders to stop foreclosures. “Their collections departments have beat (delinquent homeowners) over the head for months. It’s no wonder borrowers won’t answer the phone.”
As home prices fall from coast to coast, 8.8 million homeowners will have mortgage balances equal to or greater than the value of their property by the end of the month, Moody’s Economy.com. predicts.
That could come as a shock to consumers who thought property values would always rise, and it helps explain the attitudes lenders are seeing among their troubled customers, Goodman says.
“If you buy a car and it depreciates,” Goodman says, “you don’t expect the automobile dealer to write off your loan. There’s a sense of entitlement (among homeowners) that is just unbelievable.”
In New Jersey, Lauria said he sent the FHA about 3,000 of his company’s delinquent loans to see how many could be refinanced under the FHASecure program. The answer: 61.
Even for the borrowers who contact their loan servicers, the options the companies can offer are tightly constrained by their contracts with investors who buy and sell pools of loans that are packaged as bonds.
But Lauria doesn’t believe every homeowner who can’t pay their mortgage can or should be saved.
“One-third of people who are delinquent should be in foreclosure. It’s the best alternative,” he says. “They don’t have the money. They shouldn’t have (gotten the loan) to begin with.”
And that’s why, he says, he doesn’t blame some of them for walking away from their homes.