Fend off foreclosure

Banks are giving delinquent mortgagees much more leeway than ever before - perhaps by default.

While delinquent mortgage payments have dropped slightly, according to the latest figures released by the Mortgage Bankers Association of America (MBA), foreclosures are still on the rise.

The percentage of loans in foreclosure was 1.18 percent in the fourth quarter of 2002, the latest figure available. That's up from 1.15 percent in the third quarter.

MBA chief economist Doug Duncan is somewhat optimistic that foreclosures have peaked, noting that they usually lag unemployment and delinquencies.

On the latter front, there is a shred of good news. The MBA's National Delinquency Survey for the fourth quarter of 2002 shows 4.53 percent of almost 45 million mortgage loans in the US were at least 30 days late, down from 4.66 percent during the previous three months.

"We are not out of the woods," says Mr. Duncan, who expects delinquencies will continue to fall. "It's heavily dependent on what we see in the economy going ahead."

But with the economy still down, un- employment up, and the percentage of mortgage debt to total debt rising, "the increase in foreclosures is not over yet," says Thomas Hickey, economist for TransUnion, a provider of global business intelligence services in Jackson, Miss.

"The unemployment rate will continue to climb in 2003 and the economic growth rate will be slow until 2004," he adds.

Regardless of economic conditions, lenders are taking clear steps to help borrowers avoid foreclosure. The key, they say, is for consumers to face the issue head-on.

"We just need customers to talk to us, but many people are too embarrassed," says Chuck Maness, senior vice president of National City Home Loan Services in Cleveland. "Our philosophy is to help every borrower to stay in their home.... We make absolutely no money on a foreclosure."

National City Corp. implemented a loss-mitigation program about two years ago, offering consumers a variety of repayment options to avoid foreclosure. Many other lenders, including Freddie Mac, Chase Manhattan, and Wells Fargo, have similar programs.

Among the most common options given to people struggling to meet their house payments:

Repayment plans: These plans often give homeowners additional time to bring an account up to date. For example, if a homeowner loses a job and falls behind on the mortgage before regaining employment, then the bank may arrange for the borrower to send a payment and a half for several months until the loan is current.

Modification plans: These plans are used when a borrower falls behind and cannot make up the back payments. Banks sometimes will add those payments and interest owed to the loan, giving the borrower a fresh start.

Forbearance plans: This option is usually connected with natural disasters. When the house owned by one National City customer flooded, it forced the family into a hotel while repairs were done. This extra expenses prevented the customer from making timely payments. The bank granted forbearance until the insurance company reimbursed the customer for the expenses and the loan was brought current.

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