FEATURE: REALTOR®magazine

Help Troubled Borrowers

You helped them buy a home; now they’re looking to you for advice.

BY ROBERT FREEDMAN

Troubled borrowers all around the country are wondering how—or whether—they’re eligible for any relief under the initiative President George W. Bush announced in mid-December to stem the tide of defaulted subprime mortgages. Here’s what you need to know to help your past customers or anyone who comes to you concerned about problems paying their mortgage loan.

Bush’s Hope Now initiative is a voluntary accord entered into by lenders, loan servicers, and mortgage investors to help borrowers who face default when their subprime adjustable-rate mortgage resets at a higher rate. The most prominent part of the initiative is an interest-rate freeze that would give borrowers facing an unmanageable interest-rate hike the time to work out a solution.
When people ask you for advice, tell them:

1. Call the national counseling hotline President Bush publicized.
The number, 888-995-4673 (888-995-HOPE), is available on a 24/7 basis.

Calling the number puts them in contact with a HUD-approved counselor affiliated with the nonprofit Homeownership Preservation Foundation.

As of mid-December, there were about 180 counselors, and their ranks were supposed to grow to about 400 early this year, according to Tracy Morgan, vice president of the foundation.

Since the president’s announcement, counselors have seen the volume of hotline calls skyrocket from about 1,500 a day to 22,000 a day as of late December, says Morgan. She expects calls to stabilize at about 2,500 a day in 2008.

2. Expect to be on the phone about 45 minutes.
A counselor will gather information about the caller’s financial situation and make a number of determinations, including eligibility to participate in the initiative.

Home owners are eligible for the initiative if they’re current and expect to stay current after the rate resets but are looking to refinance into a more appropriate loan; they’re current but face possible default after their rate resets, so they need to modify their existing loan or refinance into more affordable financing; or they’re in default before their rate resets.

The initiative applies only to purchase-money mortgages, not home equity loans, and only to borrowers who secured financing during the height of the housing boom — Jan. 1, 2005, to July 31, 2007 — and whose rate resets between Jan. 1, 2008, and July 31, 2010. Lenders estimate some 1.2 million borrowers are eligible.

Of course, the counselors can help borrowers who don’t meet eligibility for the initiative, too. “Most of the calls we receive today continue to be for more traditional types of payment problems,” says Roy Nash, executive director of NeighborWorks Waco, a Texas credit counseling and financial education organization. “Income problems as a result of a job loss and unexpected expenses like a medical emergency continue to be the main reason people call.”

3. Expect a counselor to recommend a course of action.
Typically, two or three hotline calls transpire before the counselor has enough information to make a recommendation, though it might take just one call if the borrower is prepared with paperwork verifying income and monthly expenses.

“The more prepared they are, the more quickly we can help them,” says Daniel Garcia, a counselor with NeighborWorks Waco.

The counselor’s main job is to explain what options are available based on a borrower’s situation and to have the borrower call the mortgage servicer to initiate a workout plan.

In some cases, the counselor will recommend the borrower call another counselor, one in the borrower’s area, and get counseling in person. In other cases, the counselor will contact the servicer directly. To do that, counselors must get the borrowers’ written authorization to act on their behalf.

4. Servicers are increasingly amenable to be flexible.
Garcia says servicers are more willing to take calls and be flexible than before the subprime crisis.

“A lot of these lenders [who also do servicing] are overflowing with REOs and can’t take any more, so they have to do something,” says Garcia. “They’re ramping up their staff to deal with this, hiring and training more people, and giving them more authority.”

Countrywide Home Mortgage, the country’s largest mortgage lender and the servicer for an estimated 82,000 loans whose borrowers fall under Hope Now’s eligibility criteria, has a team of 3,000 handling workout plans, though not only for Hope Now cases.

Wells Fargo has established a dedicated counselor phone line. “If customers go to a counseling agency because they need to get help, and they give the authorization to the counseling agency, we will talk to that third party,” says Patrick Carey, executive vice president of default and retention operations for Wells Fargo.

5. Borrowers are receiving fast-track workout plans based on their eligibility.
Servicers have the most flexibility in working with borrowers who are current on their mortgage and expect to stay current after rates reset. Servicers determine these borrowers’ eligibility for refinancing based on information the servicer already has on file, such as the current loan amount and loan-to-value ratio and the borrowers’ FICO score and credit history.

Refinancing is the typical solution for these borrowers, and the servicer is supposed to recommend the best available replacement product for the borrower, even if that product isn’t one offered by a lender affiliated with the servicer’s company.

Carey of Wells Fargo says his company is prepared to do that. “Whatever works best for customers’ financial circumstance, we will work with them to accomplish,” he says.

The servicers are also supposed to help borrowers avoid prepayment penalties in a refinancing, though that might be easier said than done because many subprime loans come with stiff prepayment penalties. The initiative recommends—rather than requires—that servicers modify the original loan to eliminate a penalty. At the same time, investor rules for securities backed by these mortgages govern what servicers can and can’t do, so any attempt to modify a provision such as a prepayment penalty without investors’ OK can invite a lawsuit.

“Any servicers who service loans for others, as most of us do, are governed by the constraints or the guidelines of the investors who own the loans,” says Carey. “Unless you’re delegated to do something, you have to get approval to do it.”

Industry executives and government officials who designed the initiative think they’ve worked out a solution, though, because these kinds of problems were discussed before all parties, including investor representatives, signed off on the agreement.

“With the investor community on board and as a clear beneficiary of this approach, the risk of litigation should be manageable,” said U.S. Treasury Secretary Henry Paulson Jr., who spoke about the initiative in early December.

6. A rate freeze applies to some, not all, borrowers.
The interest-rate freeze that attracted the bulk of media attention when the president announced the initiative applies only to a specific subset of borrowers: those who are current on their mortgage but don’t have the financial wherewithal to stay current once their interest rate bumps up and can’t qualify to refinance.

The freeze is intended to buy these borrowers time to fix their situation. “There are some responsible home owners who can avoid foreclosure with some assistance,” President Bush said when he announced the initiative. “We don’t want to bail out those who recklessly took out a mortgage they couldn’t afford.”

Thus, home owners who’ve suffered a job loss or a costly medical situation may not be eligible for the freeze; to qualify, borrowers also have to have secured their financing during the eligibility window and be current before their rate’s reset.

The recourse for ineligible borrowers is traditional financial counseling, says Morgan.

7. Traditional remedies are open to the most troubled borrowers.
The last group of borrowers the initiative is designed to address includes home owners who are unable to make their payments even before the rate resets. For these borrowers, servicers have few options other than to find the least painful loss mitigation strategy.

“This is when we shift the discussion to deed in lieu of foreclosure or short sale, because these approaches give customers the opportunity to leave that property without going through the foreclosure process,” says Carey.

If borrowers in this situation first call a servicer rather than a counselor, it’s not uncommon for the servicer to refer them to a counselor before any action is taken. The borrowers might be good candidates for various assistance programs available through counselors.

“A lot of times now, the lender is directly referring the client to the Hope Now hotline, and in turn it gets referred to us,” says Garcia of NeighborWorks. “That’s a good thing.”

Counselors often bring a broader view of possible solutions than the servicer can offer. “We can direct them to organizations that can help them gain more income or help them temporarily with utility assistance. And we can also credit counsel them—help them budget better,” says Garcia.

The most important advice you can give is to encourage borrowers to call the hotline and start the process of seeking a solution to their financing woes.

Carey of Wells Fargo emphasized that servicers can do nothing until borrowers call.

“One of the biggest challenges we have in the industry is being able to even have these discussions that can help them,” says Carey. “That’s why it’s so important that they pick up the phone.”

---

Different Help for Different Borrowers

Troubled borrowers who call the Hope Now hotline, 888-995-4673 (888-995-HOPE), will find that their solution will depend on their situation.

Owners who are able to stay current even with a rate reset:

Solution: Counseling and refinancing. Lenders may be able to take these borrowers through a fast-track process into a more affordable loan.

Potential pitfall: Prepayment penalty. Borrowers are encouraged to time their refinancing to after the rate reset, since penalties often apply only during the initial rate period.

Owners who face default after a rate reset:

Solution: Counseling and rate freeze of up to five years. To qualify, they must be ineligible for refinancing (e.g., have a loan-to-value ratio of greater than 97 percent), occupy the property as a primary residence, and have a credit score of less than 660 that hasn’t improved more than 10 percent since the loan was originated.

Potential pitfall: The rate freeze is temporary; borrowers still need to work out a long-term solution

Owners already in default:

Solution: Counseling and a loss-mitigation strategy, such as a short sale or deed in lieu of foreclosure. Under the mortgage debt foregiveness law signed by President Bush Dec. 20, borrowers who receive debt foregiveness as part of a loan workout over the next three years won’t have to pay federal tax on the forgiven amount.

Potential pitfall: Those who don’t call in time may not be able to avoid foreclosure.

LINKS
Hope Now

FEATURE: REALTOR®magazine

Help Troubled Borrowers

You helped them buy a home; now they’re looking to you for advice.

BY ROBERT FREEDMAN

Troubled borrowers all around the country are wondering how—or whether—they’re eligible for any relief under the initiative President George W. Bush announced in mid-December to stem the tide of defaulted subprime mortgages. Here’s what you need to know to help your past customers or anyone who comes to you concerned about problems paying their mortgage loan.

Bush’s Hope Now initiative is a voluntary accord entered into by lenders, loan servicers, and mortgage investors to help borrowers who face default when their subprime adjustable-rate mortgage resets at a higher rate. The most prominent part of the initiative is an interest-rate freeze that would give borrowers facing an unmanageable interest-rate hike the time to work out a solution.
When people ask you for advice, tell them:

1. Call the national counseling hotline President Bush publicized.
The number, 888-995-4673 (888-995-HOPE), is available on a 24/7 basis.

Calling the number puts them in contact with a HUD-approved counselor affiliated with the nonprofit Homeownership Preservation Foundation.

As of mid-December, there were about 180 counselors, and their ranks were supposed to grow to about 400 early this year, according to Tracy Morgan, vice president of the foundation.

Since the president’s announcement, counselors have seen the volume of hotline calls skyrocket from about 1,500 a day to 22,000 a day as of late December, says Morgan. She expects calls to stabilize at about 2,500 a day in 2008.

2. Expect to be on the phone about 45 minutes.
A counselor will gather information about the caller’s financial situation and make a number of determinations, including eligibility to participate in the initiative.

Home owners are eligible for the initiative if they’re current and expect to stay current after the rate resets but are looking to refinance into a more appropriate loan; they’re current but face possible default after their rate resets, so they need to modify their existing loan or refinance into more affordable financing; or they’re in default before their rate resets.

The initiative applies only to purchase-money mortgages, not home equity loans, and only to borrowers who secured financing during the height of the housing boom — Jan. 1, 2005, to July 31, 2007 — and whose rate resets between Jan. 1, 2008, and July 31, 2010. Lenders estimate some 1.2 million borrowers are eligible.

Of course, the counselors can help borrowers who don’t meet eligibility for the initiative, too. “Most of the calls we receive today continue to be for more traditional types of payment problems,” says Roy Nash, executive director of NeighborWorks Waco, a Texas credit counseling and financial education organization. “Income problems as a result of a job loss and unexpected expenses like a medical emergency continue to be the main reason people call.”

3. Expect a counselor to recommend a course of action.
Typically, two or three hotline calls transpire before the counselor has enough information to make a recommendation, though it might take just one call if the borrower is prepared with paperwork verifying income and monthly expenses.

“The more prepared they are, the more quickly we can help them,” says Daniel Garcia, a counselor with NeighborWorks Waco.

The counselor’s main job is to explain what options are available based on a borrower’s situation and to have the borrower call the mortgage servicer to initiate a workout plan.

In some cases, the counselor will recommend the borrower call another counselor, one in the borrower’s area, and get counseling in person. In other cases, the counselor will contact the servicer directly. To do that, counselors must get the borrowers’ written authorization to act on their behalf.

4. Servicers are increasingly amenable to be flexible.
Garcia says servicers are more willing to take calls and be flexible than before the subprime crisis.

“A lot of these lenders [who also do servicing] are overflowing with REOs and can’t take any more, so they have to do something,” says Garcia. “They’re ramping up their staff to deal with this, hiring and training more people, and giving them more authority.”

Countrywide Home Mortgage, the country’s largest mortgage lender and the servicer for an estimated 82,000 loans whose borrowers fall under Hope Now’s eligibility criteria, has a team of 3,000 handling workout plans, though not only for Hope Now cases.

Wells Fargo has established a dedicated counselor phone line. “If customers go to a counseling agency because they need to get help, and they give the authorization to the counseling agency, we will talk to that third party,” says Patrick Carey, executive vice president of default and retention operations for Wells Fargo.

5. Borrowers are receiving fast-track workout plans based on their eligibility.
Servicers have the most flexibility in working with borrowers who are current on their mortgage and expect to stay current after rates reset. Servicers determine these borrowers’ eligibility for refinancing based on information the servicer already has on file, such as the current loan amount and loan-to-value ratio and the borrowers’ FICO score and credit history.

Refinancing is the typical solution for these borrowers, and the servicer is supposed to recommend the best available replacement product for the borrower, even if that product isn’t one offered by a lender affiliated with the servicer’s company.

Carey of Wells Fargo says his company is prepared to do that. “Whatever works best for customers’ financial circumstance, we will work with them to accomplish,” he says.

The servicers are also supposed to help borrowers avoid prepayment penalties in a refinancing, though that might be easier said than done because many subprime loans come with stiff prepayment penalties. The initiative recommends—rather than requires—that servicers modify the original loan to eliminate a penalty. At the same time, investor rules for securities backed by these mortgages govern what servicers can and can’t do, so any attempt to modify a provision such as a prepayment penalty without investors’ OK can invite a lawsuit.

“Any servicers who service loans for others, as most of us do, are governed by the constraints or the guidelines of the investors who own the loans,” says Carey. “Unless you’re delegated to do something, you have to get approval to do it.”

Industry executives and government officials who designed the initiative think they’ve worked out a solution, though, because these kinds of problems were discussed before all parties, including investor representatives, signed off on the agreement.

“With the investor community on board and as a clear beneficiary of this approach, the risk of litigation should be manageable,” said U.S. Treasury Secretary Henry Paulson Jr., who spoke about the initiative in early December.

6. A rate freeze applies to some, not all, borrowers.
The interest-rate freeze that attracted the bulk of media attention when the president announced the initiative applies only to a specific subset of borrowers: those who are current on their mortgage but don’t have the financial wherewithal to stay current once their interest rate bumps up and can’t qualify to refinance.

The freeze is intended to buy these borrowers time to fix their situation. “There are some responsible home owners who can avoid foreclosure with some assistance,” President Bush said when he announced the initiative. “We don’t want to bail out those who recklessly took out a mortgage they couldn’t afford.”

Thus, home owners who’ve suffered a job loss or a costly medical situation may not be eligible for the freeze; to qualify, borrowers also have to have secured their financing during the eligibility window and be current before their rate’s reset.

The recourse for ineligible borrowers is traditional financial counseling, says Morgan.

7. Traditional remedies are open to the most troubled borrowers.
The last group of borrowers the initiative is designed to address includes home owners who are unable to make their payments even before the rate resets. For these borrowers, servicers have few options other than to find the least painful loss mitigation strategy.

“This is when we shift the discussion to deed in lieu of foreclosure or short sale, because these approaches give customers the opportunity to leave that property without going through the foreclosure process,” says Carey.

If borrowers in this situation first call a servicer rather than a counselor, it’s not uncommon for the servicer to refer them to a counselor before any action is taken. The borrowers might be good candidates for various assistance programs available through counselors.

“A lot of times now, the lender is directly referring the client to the Hope Now hotline, and in turn it gets referred to us,” says Garcia of NeighborWorks. “That’s a good thing.”

Counselors often bring a broader view of possible solutions than the servicer can offer. “We can direct them to organizations that can help them gain more income or help them temporarily with utility assistance. And we can also credit counsel them—help them budget better,” says Garcia.

The most important advice you can give is to encourage borrowers to call the hotline and start the process of seeking a solution to their financing woes.

Carey of Wells Fargo emphasized that servicers can do nothing until borrowers call.

“One of the biggest challenges we have in the industry is being able to even have these discussions that can help them,” says Carey. “That’s why it’s so important that they pick up the phone.”

---

Different Help for Different Borrowers

Troubled borrowers who call the Hope Now hotline, 888-995-4673 (888-995-HOPE), will find that their solution will depend on their situation.

Owners who are able to stay current even with a rate reset:

Solution: Counseling and refinancing. Lenders may be able to take these borrowers through a fast-track process into a more affordable loan.

Potential pitfall: Prepayment penalty. Borrowers are encouraged to time their refinancing to after the rate reset, since penalties often apply only during the initial rate period.

Owners who face default after a rate reset:

Solution: Counseling and rate freeze of up to five years. To qualify, they must be ineligible for refinancing (e.g., have a loan-to-value ratio of greater than 97 percent), occupy the property as a primary residence, and have a credit score of less than 660 that hasn’t improved more than 10 percent since the loan was originated.

Potential pitfall: The rate freeze is temporary; borrowers still need to work out a long-term solution

Owners already in default:

Solution: Counseling and a loss-mitigation strategy, such as a short sale or deed in lieu of foreclosure. Under the mortgage debt foregiveness law signed by President Bush Dec. 20, borrowers who receive debt foregiveness as part of a loan workout over the next three years won’t have to pay federal tax on the forgiven amount.

Potential pitfall: Those who don’t call in time may not be able to avoid foreclosure.

LINKS
Hope Now