Foreclosure Prevention Hotline aids troubled borrowers

When Emilio Gutierrez missed a third mortgage payment on his Thornton-area home late last year, he knew he was headed for serious financial trouble.

But after calling the Colorado Foreclosure Prevention Hotline and meeting with an Adams County housing counselor, Gutierrez worked out a repayment plan with Countrywide Home Loans, his mortgage provider.

"If you have the desire to save your home, call that hotline," Gutierrez said. "You have to be willing to make the sacrifices."

About 16,000 people have called the hotline since it started last October, according to the Colorado Division of Housing.

About half of callers take the next step of meeting with a housing counselor, said Ryan McMaken, a spokesman for the division.

Of that group, about four out of five are able to avoid foreclosure, McMaken said, although that doesn't mean they necessarily keep their homes.

About a third of those who meet with a housing counselor still lose their homes in short sales, in which the lender agrees to accept a sales price below what is owed on the mortgage.

Several factors help borrowers who go through the hotline to work out better terms with lenders.

Counselors screen out troubled borrowers who are too far behind to help or who aren't honest about their financial situation.

That helps loss-mitigation agents at the mortgage companies who are typically loaded down with 200 to 300 files each and are eager to prioritize, McMaken said.

"It shows the borrower is really engaged. That makes them move up the list," McMaken said.

Financial mismanagement, an unsuitable mortgage loan and unsteady work in the circuit-board manufacturing industry combined to put Gutierrez behind, said Mary Ellen De Los Santos, housing counseling coordinator with the Adams County Housing Authority.

Last October, Gutierrez got a better-paying job as a service technician for microfilm equipment. He was also motivated to make the necessary sacrifices to catch up, she said.

Gutierrez and his wife, Cecilia, share the mortgage on a duplex with their daughter. Their failure would have brought her down as well.

Gutierrez, 55, adds that he doesn't want to face the prospect of retirement as a renter, something he has been most of his life.

"We had too much of our lives and heart in that place," he said.

The couple bring home about $3,000 a month. They are meeting their share of monthly mortgage payments of $1,000 a month and paying another $700 a month to catch up on the missed payments.

They should be current by the end of August.

The Gutierrez family, however, won't be out of the woods even then. Their adjustable-rate mortgage resets sharply higher next March, from a 7.13 percent interest rate to above 10 percent, De Los Santos estimates.

Gutierrez hopes De Los Santos can help him refinance out of that situation as well, once a $10,000 prepayment penalty on his current loan expires.

"I still get up at night," Gutierrez said. "It is hard for me to sleep. I am dealing with it one day at a time."

How to get help

Call the state's Foreclosure Prevention Hotline. 877-601-4673

Coping With Foreclosures: Homeowners Need Help

The deepening sub-prime home mortgage crisis was underscored by the Mortgage Bankers Association’s yesterday when the MBA reported that the percentage of payments 30 or more days past due for sub-prime adjustable-rate home mortgages have risen 1.31-percent in the first quarter of 2007.

That’s an increase to 15.75-percent from the 14.44-percent delinquency rate of last quarter, a “sizable increase” according to Doug Duncan, the MBA’s chief economist.

Federal Reserve Chairman Ben Bernanke foresees further increases in delinquencies and foreclosures for at least a year into the future.

This striking jump in delinquencies is combined with equally high foreclosure numbers. The share of mortgages that are at some point in the foreclosure process increased by 1.28 percent—the highest rate since the first quarter of 2004, and the fourth quarter in a row with an increasing share of mortgages in foreclosure.

What’s more, the share of mortgages that started the foreclosure process increased to 0.58 percent in the first quarter of 2007. This is the largest share of mortgages entering foreclosures in a given quarter, the first time on record that this ratio has increased for four quarters in a row, and the largest four-quarter increase on record.

Clearly action is needed to help homeowners who have sub-prime mortgages find some financial relief. The Center for American Progress is proud to be part of that effort.

Following our March release of our report From Boom to Bust: Helping Families Prepare for the Rise in Subprime Mortgage Foreclosures, which predicted the present conditions of the failed housing market and prescribed federal policies to reduce the impact of negative consequences, members of the House and Senate turned to the report for policy guidance. Among our recommendations:

• Provide federal grants to expand and enhance current mortgage assistance and foreclosure prevention programs and low-interest mortgage assistance to eligible borrowers.
• Allot federal funds to target key cities and states facing the highest risk of mass foreclosure.
• Include provisions to ensure federal agencies assess the effectiveness of each program every three years.
• Strengthen programs that aid families while their mortgage contracts are renegotiated or the property is sold on the market so that the homeowners’ credit ratings are salvaged, allowing for the possibility of future homeownership.

A number of members of Congress see the merits in several of our proposals. Sen. Jack Reed (D-RI), for example, has introduced legislation that would provide better federal housing assistance to low and moderate income families. Similar legislation in the House is under consideration. Separately, Sen. Charles Schumer (D-NY) has proposed a $300 million emergency foreclosure workout plan.

The Center applauds these legislative moves and looks forward to our complete set of recommendations being adopted by the full Congress later this year.

Foreclosures often lock out renters

Foreclosure doesn't always hurt only the person whose name is on the mortgage. More renters are turning to support agencies for help.

Kimberly Edwards found out the duplex she was renting was in foreclosure only when a notice written in legalese was taped to her door. But its meaning was crystal clear: She and her two sons had to vacate the premises the next day or go to court.

As it happened, the property had been in foreclosure when she moved in and the six-month grace period was up. Edwards, a 29-year-old single mother in school with plans to become a paralegal, was paying her portion of her subsidized rent to a man who wasn't making mortgage payments.

Edwards is one of a growing number of renters being displaced because their landlords are losing their investment properties to foreclosure.

While there is no estimate of the number of renters being forced to move because their buildings are in foreclosure, workers on the front lines -- from foreclosure prevention counselors to tenants organizations -- say that starting last year, they began hearing from significantly more people caught in the foreclosure crossfire. The problem has been getting worse.

The number of investment properties entering foreclosure suggests the problem is widespread, although it is unclear how many of those were vacant. Hennepin County estimates that in the first quarter, about 45 percent of foreclosed properties could have been rentals, up from about 33 percent in 2006. Ramsey County estimates 43 percent in the first quarter.

Beth Kodluboy, executive director of the Minneapolis tenant advocacy group Home Line, has seen a steady increase in foreclosure-related calls. Through early June, the group took 77 calls -- as many as it did in all of 2006.

Cheryl Peterson, senior mortgage foreclosure prevention counselor for Twin Cities Habitat for Humanity, said she's been getting more and more calls from renters in the past year. "They don't know what to do," she said. Neither does Peterson, who is set up to work with homeowners, not tenants.

When displaced renters call, she explains the complicated and lengthy foreclosure process. She does what she can to refer renters to organizations that may be able to help with legal matters or with new housing, such as Legal Aid or tenant advocacy groups. Peterson also gets "a lot of calls from people who own several properties in north and south Minneapolis." she said. "Juggling the financing of multiple mortgages ... is beyond the foreclosure counseling programs's area of expertise because it's a business venture."

She blames the increase of investment property delinquencies on a mixture of subprime lending and small-time landlords who "couldn't afford the properties to begin with," and were dreaming of making it rich in real estate. But many took on more debt than they could afford, their adjustable mortgage rates spiked, or they couldn't find renters. They stopped making repairs. Then utilities got shut off.

Some landlords continue to pocket rent long after they stop paying the mortgage, allowing a tenant to learn of the foreclosure only when a deputy knocks on the door to hand them a foreclosure notice.

Telltale signs

Tenants advocates say that clues of foreclosure typically show up long before that.

For Edwards, the first sign that something wasn't right at the duplex at 36th Avenue and Washburn Avenue N. came in August, when the water was shut off for a couple of days. Her landlord, who lives in Colorado, also was slow to have a handyman come and fix the radiators, which were blazing hot in summer.

There were other signs. "He couldn't rent the other half of the duplex and the house was on the market, too, the entire time," Edwards said.

The court granted her 30 days to vacate, which gave her until just before Christmas to leave. "My kids didn't have a Christmas," she said.

Happy with the neighborhood, where she said "it was OK for my kids to ride bikes up and down the street," and lacking money to move, she tried to convince the bank holding the mortgage to let her pay rent directly to it and stay. But she recalls being told "absolutely not, because they didn't want to be a landlord."