The Pioneer Press in a continuing series of articles discusses servicers increasingly utilizing additional resources to delinquent borrowers in an attempt to avoid foreclosure.

Lending support to save homes

Sometimes, homeowners in default are too scared to deal with the bank. That's where third-party debt counselors come in.

They're dubbed the no-contacts — the people who miss mortgage payments, and end up losing their homes to foreclosure without ever making contact with their loan servicer or lender.

It's surprising how many there are. A full one-half of owners who lose their homes never have contact with the folks on the other end of the mortgage payment after falling behind, according to estimates by Freddie Mac, the McLean, Va.-based mortgage buyer. That's a troubling statistic.

And with foreclosures rising around the nation — more than 200,000 homes have gone back to the bank in foreclosure sales already this year — lenders and loan servicers are scrambling to coax out reluctant homeowners before it's too late. Hooking at-risk homeowners with free third-party debt counseling is an increasingly popular tactic.

'Everyone's looking for that magic potion to encourage borrowers to talk with us,' said Jerry Durham, vice president of homeownership preservation for Calabasas, Calif.-based mortgage giant Countrywide Financial.

Darcy Cross may not have magic, but he performs small miracles from his Roseville cubicle on a regular basis. Cross, 38, is a HUD-certified credit counselor at the nonprofit Auriton Solutions Inc., one of a number of counseling agencies contracting with the Bloomington-based Homeownership Preservation Foundation to try to prevent home foreclosures. Call the foundation's year-old 888-995-HOPE hot line, and you just might be transferred to him.

In his fleece vest, Cross, of Fridley, looks like a low-key hockey dad. A rainy Tuesday morning finds him in his cubicle, finishing up a call with a woman from Iowa who is 31 months behind on her mortgage. Things unraveled after her husband, a driver, had an accident and was let go. The couple had filed for bankruptcy, although the case was recently tossed out.

In all those 31 months the bank and the borrower had spoken only once before, said Cross. The couple were simply too afraid. So Cross arranged a three-way phone call with the woman and a Wells Fargo loan counselor. Because the woman's husband is employed again, Cross said it's likely the bank will modify the mortgage and help save the house.

"You kind of have to hold them a little bit, and say 'Hey, we're here to help you,' " Cross said after hanging up. "She's probably going to sleep better tonight than she has in a long time."

Tapped-out homeowners can experience a kind of paralysis, counselors say. People feel shame. They're afraid lenders and loan servicers want to take their house. Some go into denial. A recent survey of delinquent borrowers commissioned by Freddie Mac said that 75 percent recall being contacted by their lender, but that they didn't follow up. Most often, the borrowers said they didn't respond because they think there's no reason to, that they have things under control.

To break the silence, lenders are employing a range of strategies: posting workout packages on the Web, express-mailing invitations to meet with a loan counselor, paying housing activists from groups like ACORN to knock on doors, and marketing toll-free hot lines for free debt counseling with a neutral third party.

Like Auriton.

Auriton's 10 counselors field up to 75 phone calls a day from financially distressed homeowners across the U.S. and Puerto Rico as part of their work. Most of the calls come from places such as Dallas, Detroit and Ohio, Auriton's counseling director Josh Fuhrman said. Foreclosures are doubling in the Twin Cities this year, but the numbers are still low compared with other areas.

Snippets of conversation can be heard above the Auriton cubicles where counselors hammer out budgets with callers: "Do you have cable TV?" "You have $22,000 in credit card debt." "Do you take your wife out to eat?"

USE OF COUNSELORS HAS EXPANDED

The use of third-party counselors, long required for FHA and HUD loans, has been greatly expanded, according to the nonprofit Homeownership Preservation Foundation.

Case in point: About 18 major lenders and servicers, including Citigroup and Wells Fargo, recently joined forces with the Advertising Council to finance a three-year national TV, Web, radio and print advertising campaign. The campaign will promote a toll-free hot line hooking up borrowers with third-party counselors such as Auriton for free advice. Watch for the new 888-995-HOPE ads to start airing next spring. About 250,000 milk cartons sporting the HOPE number hit stores last month in Detroit — one of several foreclosure hot spots in the Midwest.

The Homeownership Preservation Foundation first launched the HOPE hot line last year with help from the Homecomings Financial, a major subprime mortgage servicer that is also based in Bloomington. Homecomings' Web site is plastered with the HOPE number.

Steve Nelson, Homecomings' director of foreclosure prevention, urges homeowners to contact the company that services their loans before they start missing house payments. They should call at the first sign of trouble, such as when they start paying credit card bills with other credit cards, he said.

The good news for homeowners is that mortgage servicers these days are less aggressive about sending loans into foreclosure than even a few years ago, says Kathleen Tillwitz, a senior director at Fitch Ratings in New York. One reason: Foreclosures are expensive. It costs the industry an average of $59,000 to foreclose on a house and get it resold, according to a widely-cited 2002 study by Craig Focardi at Needham, Mass.-based TowerGroup Inc.

Some companies are trying to head delinquencies off at the pass. They're calling and mailing borrowers with adjustable-rate mortgages to warn them that the interest rates on their mortgages will reset in 60 days, and that their payments could jump substantially. To lure homeowners who shy away from confrontation, some loan servicing companies have started posting loss-mitigation packages on their Web sites so scared borrowers can get on the computer and zap in forms, even at 2 a.m.

Most servicers offer workout plans to make up missed payments. Some will modify loans, turning an adjustable-rate mortgage into a fixed-rate one, for example. Some servicers allow homeowners to skip payments altogether if they show they can make it up at a future date because of, say, a new job. Homeowners can also do a "deed-in-lieu," in which they basically give the lender the house back in exchange for canceling the debt, or a short sale, in which they find a buyer for the house and then work out the difference between the sale price and the amount the homeowner owes with the servicer.

SOME SERVICERS COME UP SHORT

Not all servicers rank high on reaching out. It's not hard to find a homeowner who valiantly tried, but was never able to communicate with their servicer. There's even a Web site devoted to servicing horror stories: www.msfraud.org.

Randy Schlenner, the single dad from St. Paul's East Side the Pioneer Press interviewed in the first story in this series, owed about $4,151. He said he faxed three times the workout documents his loan servicer requested. Each time America's Servicing Co., a unit of Wells Fargo, lost them, he said.

"It's all still sitting here in a file on my desk," said Schlenner, whose house was sold in a sheriff's auction over the summer.

A Wells Fargo Home Mortgage spokesman said that client-confidentiality rules prevent the bank from discussing the situation. Wells Fargo makes every reasonable attempt to solve such issues and help customers stay in their homes, he said.

Servicers have been brushing up their act since two major players were accused of abusive practices. Salt Lake City-based Fairbanks Capital Corp. (now Select Portfolio Servicing Inc.) paid $40 million in 2003 to settle a federal investigation into allegations of threatening borrowers with foreclosure and stonewalling borrowers trying to discuss their situation.

The next year the U.S. Office of Thrift Supervision forced Ocwen Financial Corp. in West Palm Beach, Fla., to overhaul its practices after a flood of complaints about practices, such as charging customers big fees for the default letters mailed to them.

Heavy-handed tactics don't work for stressed-out homeowners facing foreclosure, said Bill Merrill, director of default asset management at Freddie Mac. Freddie Mac targets borrowers who are 45 days or more late. Homeowners who are just 30 days late tend to cure themselves, Merrill said, and people who are more than 60 days late may be too far gone. Said Merrill: "I'm trying to catch that sweet spot in between."

Freddie Mac has been touring Midwest cities lately to promote its own toll-free number that connects borrowers to Consumer Credit Counseling Service workers in either Atlanta or San Francisco.

Merrill estimates that his team reaches about one-quarter of its no-contacts and that up to half of that group is kept out of foreclosure.

At Auriton, counseling director Fuhrman estimates they prevent foreclosures for 75 percent of those counseled. He says, "We literally make a difference in peoples' lives every day."

To view theo nline article, please click here.