That sinking feeling

Mortgage holders who can't keep up with payments have lifelines available, but they need to act quickly
By MAUREEN MILFORD, The News Journal

Posted Monday, March 17, 2008

From the moment in March 2006 when Melissa and Greg Thomas moved into the $445,000 house they built on five acres in Clayton, they knew they could barely afford it.

Because of various problems that arose during construction, the Thomases have been unable to make the full monthly mortgage payment of $4,203 "since Day One," Melissa Thomas said. Initially, they figured the rising housing market would solve their problem. The home would increase in value in a year and they would refinance.

But the bottom fell out of the market. When the Thomases investigated refinancing, they discovered they have a huge prepayment penalty provision in their mortgage, which would cost them thousands of dollars. If they refinance, the Thomases will owe more than the house is worth, said Melissa Thomas, who is nurse. As it is, they are racking up more debt every month because they make only the minimum payment.

"You feel like you're in quicksand," said Greg Thomas, who works for an engineering firm. "We're going under slowly."

Every homeowner caught in today's mortgage crisis has a unique -- and often complex -- story of financial difficulty. Some, like the Thomases, are grappling with a mortgage they can't sustain over the long term. Others are delinquent on their loans, while some are already in foreclosure.

Trouble can start with the loss of a job, a medical problem, divorce, a spouse's death or a resetting of an adjustable rate mortgage, said Nina Heck, director of counseling with Consumer Credit Counseling Service of Maryland and Delaware, in Baltimore. But regardless of how homeowners got into trouble, their predicament is the same: They need help -- now.

Unfortunately, scammers are ready to pounce on distressed homeowners, said Gerry Kelly, deputy bank commissioner with the Delaware Office of the State Bank Commissioner. Some charge huge fees for making phone calls or filling out paperwork, according to the Federal Trade Commission. Others deceive homeowners into thinking they are being brought current on their mortgage when they are, in fact, signing over the deed to their house.

"If there is ever a time when they need a friend who knows the ropes and will advocate on their behalf, it is now. They need substantive help. They need someone who is trained, who knows the lingo, who knows how to go to bat for them," said Gail Cunningham, senior director of public relations with the National Foundation for Credit Counseling, which has managed foreclosure intervention programs since 1993.

Counselors said the first thing to do is face the problem.

Borrowers who did not respond to repeated attempts by their lender to contact them accounted for 23 percent of the foreclosures started in the United States during the third quarter of 2007, according to a January study by the Mortgage Bankers Association.

In Delaware, among borrowers who went into the foreclosure process in the third quarter, 21 percent did not respond to calls and letters from their lender.

"Something has caused them to suddenly not have the income necessary to pay their mortgage, and they don't address it. This is where the shuffle begins -- they pay the smaller bills," said Nina Heck, director of counseling with Consumer Credit Counseling Service of Maryland and Delaware in Baltimore."

Kerry Sheldon, of Brookland Terrace near Prices Corner, understands how that can happen. Sheldon, who refinanced her approximately $200,000 house when the housing market was strong, fell behind on her adjustable rate mortgage payments last year after her rate reset twice. Her payment went from about $900 a month to nearly $1,400.

When the letters arrived from the mortgage lender, Sheldon said, her "first inclination was to hide it.

"You say to yourself: I'll deal with it later, after we do homework and laundry and after we go get groceries. You say: Tomorrow's the day. The next day, you look at it, and you still don't know what to do. So you say: Next week's the week," said Sheldon, who works in customer service.

Now, Sheldon, who managed to modify her mortgage loan by "staying on top of it," is encouraging people to take charge of the situation.

"Open the mail. That seems like such a basic [step], but when you don't have the money to bring it out of arrears, you don't know what to do," she said.

Next, homeowners need to gather information, beginning with an examination of household finances and the mortgage loan.

A financial assessment should include an evaluation of total monthly household expenses and income. Homeowners should assess how much equity is in the house by subtracting what is owed on the mortgage from the market value of the house. Also, check your credit score.

"It puts everything in perspective to say, 'OK, this is where my money is going,' " Kelly said.

Along with knowing their financial situation, homeowners need to understand what kind of mortgage loan they have -- whether it's a fixed-rate mortgage or some other type, such as a hybrid adjustable-rate mortgage. Are there prepayment provisions, which penalize borrowers who refinance during the first few years of the mortgage loan? Homeowners who have trouble understanding the loan's terms should call the mortgage lender and get an explanation.

Consumers also should become familiar with the foreclosure process in Delaware to understand the timetable. A foreclosure takes about eight to nine months from the first missed payment to the sheriff's sale, Kelly said. Lenders generally will start a foreclosure action in Delaware Superior Court after the fourth missed payment, he said. Once an action is in the court, it's about a five month process until the house is foreclosed on and the house is sold at a sheriff's sale, he said.

"It's all about educating yourself," Sheldon said. "If you don't have a computer, go to the public library."

Once all this preparation is done, the homeowner is ready to take action, Kelly said.

The first step is to contact the loan company. The Federal Trade Commission recommends that anyone having trouble making payments should contact the loan servicer "as early as you can," when there are still options available.

Consumers should keep a notebook of their phone calls, including the name of the representative they spoke to and the date. A follow-up to the phone call should be done by certified mail.

Kelly recommends attending the free foreclosure prevention clinics put on by the state and the Federation of State Housing Counselors.

If, after a workshop, homeowners still feel they need help, they can go to one of the housing counseling agencies, he said. Because of the foreclosure crisis, there are many agencies today working to help consumers, Heck said.

"There's plenty of help. They just need to seek it. Again, the key to all of this is: Don't wait. If you can't pay today's mortgage, you can't pay a double next month with fees," Heck said.

A qualified foreclosure prevention advocate may suggest selling the house or transferring the property to the lender, which is known as a deed in lieu of foreclosure. Personal bankruptcy might also be an option.

The most important thing is to reach out.

"Knowledge can really make it a less stressful situation," Kelly said.

Sheldon said homeowners who manage to save their homes may also want to give back and offer assistance to those in need.

"Guaranteed, there's something you can do if you want to," Sheldon said.