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Help for homeowners facing foreclosure
It's no secret that record numbers of homeowners are facing foreclosure. Though there are no easy answers, a few area experts are working to help financially strapped owners find their way clear of the mortgage mess.
With years of experience as mortgage lenders, Dave and Keith Bryan offer a wealth of knowledge about the industry. In September, their Helping Hand Foundation began offering counseling to homeowners in danger of losing their houses.
The brothers say that initiatives by the federal government to help homeowners, such as the Hope Now Alliance established in December, offer very little meaningful assistance. The vast majority of homeowners who are in trouble are still hit with foreclosure.
“Lenders and servicers are very reluctant to do anything with these loans,” said Dave Bryan, noting that 97 percent of homeowners facing foreclosure will, in fact, lose their homes, leaving only three percent who are able to actually come to some sort of agreement with their loan servicer. “Servicers are still reluctant because they're afraid they'll be held liable [for losses] by their investors. A very small percentage of homeowners will get their rate adjusted.”
Stressing that they do not make loans to the foundation's clients, the Bryans speak the language of lenders and are an invaluable resource for homeowners facing foreclosure.
“When we get a client, they are overwhelmed,” said Keith Bryan. “They don't know what to do.”
“We talk to the clients and go through their options together,” his brother added.
For most homeowners, there are three options: Work out an agreement with the lender, sell the house for less than you owe (called a short sale), or lose the house to foreclosure.
Working it out
Making arrangements with a mortgage lender is much more difficult than it sounds.
While many financial advisors first suggest speaking to the lender when you're having trouble paying the mortgage, the advice is a bit misleading because the loan servicer is generally not the note holder, the Bryans said.
That means that homeowners must plead their case to a servicer. This, of course, takes time. At a minimum, homeowners are looking at 30 days and the Bryans have had cases drag on for much longer.
“People don't understand. They think this is as easy as going to make a phone call to work something out,” said Dave Bryan.
“I see people who are doing everything they can to pay. They're going to mom and dad to borrow money, but the servicers won't work with them until they're behind. You have to wait until you're behind before they'll negotiate, then they have to report that you've been late [to credit bureaus],” he continued.
Once communication is established with a loan servicer, homeowners are faced with the daunting task of providing financial information to the lender.
A workout can mean a number of different things, Dave Bryan said. The lender or service provider could change the rate or term of the loan, he said, noting that this happens only when the provider is supplied financial paperwork that proves that the borrower can afford to stay in the property and continue making payments if they are helped through a difficult period.
In a temporary forbearance, for instance, the servicer agrees to suspend payments as the borrow recovers from a medical issue or job loss or other situation, Dave Bryan said.
Though the Bryans have been assured that lenders are not reporting workouts on credit reports, he cannot guarantee homeowners who receive assistance from the lender won't incur in some sort of negative credit report.
“I'm told that lenders won't report workouts, but I don't know that for a fact,” he said.
Inconsistencies in how lenders and servicers deal with individual homeowners is another problem Dave and Keith Bryan battle on a daily basis. Noting that loan representatives are overloaded with requests for assistance, Keith Bryan said that it's not uncommon to receive different answers and advice from servicers within the same company.
The brothers encourage their clients to be proactive, making calls to lenders and loan servicers repeatedly to ask for help.
“You have to take the bull by the horns,” Keith Bryan said.
One method of approaching a loan workout is to hire a lawyer. Warrenton attorney John Morgan, who specialized in bankruptcy filings for years, has seen an increase in the number of homeowners doing just that.
Like Helping Hand, the firm attempts to work with service providers on behalf of its clients, helping homeowners document their situation to show that they have an ability to pay in the future and explain any hardships that made it difficult for them to pay in the past.
If they are unable to work out an adjustment or agreement, many of the firm's clients turn to bankruptcy, which generally provides them an additional three months in which to come current on their mortgage, work out a deal or attempt a short sale.
The procedure allows some people to keep their homes by getting rid of other debt, freeing up money to pay the mortgage, Morgan said.
Selling short
A short sale, which requires the agreement of the loan servicer, is another way out. In this scenario, the homeowner lists the property for sale, noting that the sale must be approved by a third party. Because the sales price is less than the borrower owes on the property, the bank must okay the transaction.
Though it can result in less credit damage than losing the house to foreclosure, short sales are extremely difficult to pull off.
According to Julie Emery, an associate broker with ReMax Regency in Warrenton, there are many hurdles to overcome to make a short sale successful.
“Realtors in general in this market are shying away from showing short sales,” she said. “It's very, very difficult to get the bank to approve them. It's not so much that the bank doesn't want to...but most financial institutions are so overburdened right now. You can't get someone on the phone and come up with a decision. It just takes too long.”
When homeowners have a second mortgage, short sales are virtually impossible, as that requires the approval of two loan servicers.
Short sales, said Dave Bryan, are all about timing. Again, servicers are not receptive to borrowers until they are behind on payments, and at that point the clock is ticking toward foreclosure.
“If you get behind two or three months, it's too late. You won't be able to sell it before it goes to foreclosure,” he said. “But if you catch it just as you fall behind, you may be able to do a short sale.”
Emery said that from the buyer's perspective, short sales require a tremendous amount of flexibility. Not only are there delays caused by having to get third party approval, if the bank approves the sale it generally won't accept any contingencies. “Usually, buyers can't get a home inspection, and the sale can't be contingent on them selling a home,” said Emery, who has seen three short sales to fruition in the last year.
While sellers take a hit on their credit history, short sales are preferable to foreclosure.
“For the seller, there is tremendous incentive to be aggressive with the price,” she said.
However, Emery pointed out that homeowners must still have the bank forgive whatever outstanding balance they owe on the property.
“In most cases, banks are forgiving it right now. Part of that is the volume, they can't go after so many people. And part of it is the political situation. If they went after all of these homeowners, they'd be crucified in the press,” she said.
The short sale “is a tricky process. It takes a lot of patience and persistence,” added Emery, who has been in the real estate business for six years.
Foreclosure
Homeowners come to foreclosure by many different means. Whether they've been unable to work out an agreement with the servicer, failed to pull off a short sale or were simply frozen by fear or indecision, the resulting foreclosure is the same.
The judgment is the “most damaging” to homeowners' credit, said Dave Bryan.
One last-resort option before seeing the house go to foreclosure is to present the lender with a deed in lieu of foreclosure, though this process is only slightly better for your credit than an actual foreclosure, Dave Bryan said.
In this scenario, homeowners turn over the keys to the property voluntarily. Generally, though, lenders won't accept this deed unless the homeowner has attempted to sell the property, he added.
Having advised about 50 clients since September, Helping Hand Foundation charges a flat fee of $500. Keith and Dave Bryan stress that they will not turn away clients who are unable to pay.
“We save every one we can. If you can help people stay in their homes and have the market legitimately correct, we do everything we can to try and walk them through it,” said Dave Bryan.
E-mail the reporter: lruby@timespapers.com .
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