Investors and loan servicers continue to experience difficulties in reaching delinquent borrowers. As the following report in the Washington Post discusses, the loan servicing industry is now utilizing more innovative and aggressive approaches to contact their borrowers.

You're Invited . . . To Pay Your Mortgage
Lenders Get Creative to Reach Borrowers in Default

Mortgage lenders hunting for delinquent homeowners who have dodged their phone calls and letters are employing aggressive new methods to track them down, potentially making every knock on the door or fancy envelope seem like part of the pursuit. Even wedding invitations are suspect.

The idea, they say, isn't to twist arms. Instead, it's to avoid foreclosures, which have cost the mortgage industry billions of dollars in the past year.

Ocwen Financial is negotiating a deal with HomeFree-USA, a nonprofit group, to go door to door in the Washington area to strike deals with elusive borrowers. Fannie Mae is offering foreclosure lawyers up to $600 to help find solutions for these homeowners. Wells Fargo is disguising its letters in different colored envelopes, including some resembling wedding invitations.

Although some lenders initially resisted paying for assistance, the industry has begun backing community groups that help them find these borrowers. The math is simple: The typical foreclosure costs more than $50,000. It is usually cheaper and less time-consuming to lower the borrower's interest rate, put them on a repayment plan or sell the home at a loss. To stem the foreclosures, the mortgage industry says, lenders need to reach people they call "no-contact borrowers," those who have eluded or rebuffed them.

There are lots of them. From September 2005 to August 2007, 53 percent of the loans backed by Freddie Mac that went into foreclosure involved borrowers who could not be reached.

Many of these homeowners do not expect, or trust, offers of help from their lenders, say community groups that have become active in this work. Some borrowers tried reaching out before an interest rate increase pushed the monthly payments out of their reach, only to be told to call back after they fell behind.

"They feel that the lender has put them into this bind, so they are not returning phone calls," said Marcia J. Griffin, president of HomeFree-USA, a local group that works with home buyers and homeowners.

Jennifer Lewin, 39, a receptionist, stretched to pay $310,000 for a three-bedroom house in Prince George's County in 2005. She was unprepared last year when her monthly payments doubled, to $2,100 a month. Lewin said she scraped the money together for two months and called her lender almost daily. She hoped to have the rate lowered, she said, but never seemed to reach the right person.

"It was just so much. I mean, I couldn't do it," said Lewin, who asked that The Post identify her by her maiden name.

Lewin fell behind on her payments. She couldn't catch up, she said, so she dodged the persistent calls and letters from the lender. "There was no way out," Lewin said. The house eventually went into foreclosure.

Many borrowers have been pursued before by aggressive debt collectors who encouraged them to use their retirement accounts, borrow from family members or raid their child's college fund to catch up on their bills, said Michael Shea, executive director of Acorn Housing, a counseling agency. "They badger you until [you] don't want to talk to the servicer again," he said. "By then, [you] don't even want to answer the phone."

Even though lenders said they were reaching out, it remains difficult to work out deals, said Mosi Harrington, executive director of Housing Initiative Partnership in Prince George's County. "We have cases that we have tried for two months to get paperwork to the right department," she said. "They put you on hold for half an hour, and the phone clicks off."

But the lenders said they were trying to change the perception that they're difficult to work with. They are testing new approaches for reaching homeowners like Janet Stark, who fell behind on her mortgage payments last year after her interest rate increased and her monthly bill rose from about $700 to $1,100. She initially tried to reach her lender but found the maze of voice mails and transfers daunting.

"Thinking you are going to lose [your home], you want to hide under the bed," said Stark, a cashier at a gas station in Minneapolis.

As Stark fell three months behind, she began getting calls six times a day. "It was horrible. They kept calling and calling. You don't have to answer the phone, but you know who it is," said Stark, a married mother of three. "We were really suffering. I didn't know where to turn."

Late last year, Stark received a letter from Acorn, the counseling agency. Within a month, she said, her interest rate and payments were lowered. The missed payments were added to her mortgage total.

Wells Fargo estimated that it had no contact with about 30 percent of delinquent homeowners who went into foreclosure in 2006. Last year, it began testing envelopes in bold or unusual colors or resembling wedding invitations.

Last month, it began experimenting with offering $250 gift cards to delinquent borrowers who had been unreachable, said Joe Ohayon, a Wells Fargo vice president.

Other lenders are focusing on building relationships with community groups. While borrowers typically respond to 3 to 5 percent of the letters sent out by lenders, they respond to about a quarter of those from such grass-roots groups, according to the Hope Now Alliance, a nonprofit organization funded by mortgage lenders.

Sometimes just using a community group's name is enough: Chase, which services $600 billion in loans, sends letters on Acorn letterhead and pays the group to leave its door hangers at the homes of borrowers it has not reached otherwise. When Ocwen, a subprime servicer, reached out to borrowers on Hope Now letterhead in December, it had a 15 percent response rate.

"That compares extremely well to the response rate from other mailings," said William Rinehart, an Ocwen vice president.

But even community groups need to approach homeowners gingerly. The Consumer Credit Counseling Service of San Francisco, under an agreement with Freddie Mac, first sends a letter offering help but usually gets only about a 5 percent response. These borrowers are probably bombarded with questionable offers of help and do not know which to trust, said Rick Harper, the group's director of housing.

Five days later, the nonprofit begins a series of at least three calls, trying to reach the homeowner at different times and on the weekend, Harper said. "We let them know the lender doesn't want your house," he said. Last year, the group was able to reach about 22 percent of targeted borrowers.

But when the program began, the counseling service first had to convince its wary employees that they were not acting as debt collectors. "We're not asking for money; we're asking if they want to keep their home," Harper said.

Some lenders pay nonprofits to go door to door. Countrywide first hired Acorn for that work in 2005 when it needed help finding homeowners displaced by Hurricane Katrina. Acorn found about 70 percent of those it sought, some of whom were sitting on their porch but had no phone service, Shea said.

More recently, when foreclosure rates spiked in Detroit and Cleveland, Countrywide tapped Acorn again. The Acorn employees told homeowners they found that they would like to help, Shea said. During the conversation, the borrowers were offered use of the Acorn employee's cellphone and given a toll-free number that would speed them through the process.

"We tell them that the lender may be willing to work out a special deal since they are there with us," he said. Acorn is paid $50 to $70 for every person found. The organization is negotiating with other companies to expand these efforts, he said.

HomeFree-USA expects to begin knocking on doors for Ocwen next month. The group's relationship with the company will not influence the advice borrowers receive, HomeFree's Griffin said.

"A homeowner who really needs to sell their home, they are going to take it a little better from us than if a lender tells you, 'You need to go and sell your house,' " she said.

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