Homeowners should get help early, report says

Only 2 percent of those who sought help from a US counseling program lost their homes.

Ross D. Franklin/AP/File
A foreclosure sign sat outside a home for sale in Phoenix this past February. Arizona has one of the highest foreclosure rates in the country. A new report, however, provides some hope for struggling homeowners.

A group that receives federal dollars as part of efforts to help financially strapped homeowners has some good news: If the homeowner seeks assistance early enough, it can probably stop a foreclosure.

In a report to Congress Tuesday, NeighborWorks America reports that the National Foreclosure Mitigation Counseling Program has helped 373,169 struggling homeowners between March 2008 and February of this year.

Only 2 percent of those helped lost their homes, says NeighborWorks, the administrator of the program. Some 25 percent were able to stay in their homes by initiating new repayment plans with their lenders. The rest of those being helped are still in their homes while negotiations with their lenders continue.

The report comes at a time of soaring foreclosures. Last month, RealtyTrac reported that 342,000 households received at least one foreclosure notice in April. One reason: Moratoriums on foreclosures in some key states had ended. At the same time, home prices have continued to decline, which is forcing many homeowners to reevaluate if it's worth continuing to make their monthly mortgage payments.

“This report shows that those that seek counseling early have a better likelihood of not being foreclosed and those that are early have a better chance of getting a payment plan and loan modification,” says Doug Robinson, a spokesman for the NeighborWorks in Washington. “The report also shows the extent and breadth of the problems.”

For example, NeighborWorks reports that 53 percent of those being helped are minorities, who make up only 24 percent of homeowners in America. And during a time when mortgage rates are close to historic lows of about 5 percent, 35 percent of African-Americans and 18 percent of Hispanics have mortgages with interest rates above 8 percent.

Despite those high interest rates, only 7 percent of all those getting help reported they were in default because their loan payment had increased. Instead, 49 percent said the main reason they were behind on their payments was related to the economy: They had experienced either a reduction in income or a job loss. This percentage is up from 45 percent in February, when an earlier report was released, and 41 percent in an October update.

The report also shows that many homeowners facing a financial change have gotten the message to seek counseling early. More than half of the homeowners getting help were fewer than 60 days late on their mortgages. In fact, 30 percent were current.

Other statistics in the report show how many of those in danger of losing their homes are stretched to make their payments. Roughly 39 percent of those counseled paid more than 50 percent of their income to housing costs. Twenty percent somehow managed to pay 75 percent of their income on housing.

In March, the Obama administration began a $75 billion program called Making Home Affordable, which tries to reduce mortgage payments to 31 percent of income.

The report, which is the third one issued by NeighborWorks, is sent to the House and Senate Committees on Appropriations.

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