Curing a foreclosure is a little like curing cancer -- the sooner you catch it, the better your chance of survival.
Early on in the default process, consumers can still come back from the brink because they haven't missed more than one or two monthly payments and their lenders haven't spent too much trying to get them back in line. But as the foreclosure process moves along, the size of the delinquent debt owed and the bank legal costs that customers are usually charged mount. Borrowers who try to ignore their financial problems -- and their lenders' phone calls -- will likely lose their homes.
"As soon as you know you're going to miss your first mortgage payment, that's when we need to be notified. We can explain to the consumer what to expect throughout the process," says John Lawrence, manager of borrower counseling services with Wells Fargo & Co.'s mortgage division. "Say they've lost their job or some other type of hardship has gone on. We can give them time to help get their lives back in order.
"The longer that you go -- and if you're going into a foreclosure process, there are other fees and costs involved in that -- it does make it more difficult to ultimately get the problem solved."
Lenders looking to help
Solving foreclosures is what companies want to do these days, too, according to lending experts. Fannie Mae, Freddie Mac and the mortgage servicers responsible for administering borrower loans have all attempted to boost loan "workouts" or "cures" and reduce the number of homes that end up in the dreaded "REO," or "Real Estate Owned," category.
"Servicers should be solicitous at every step of the process to try to help the borrower stay in the home," says Danny Smith, manager of loss mitigation at Fannie Mae. "The sooner that there is a connection there between the two of them to work something out on the loan, the more likely the borrower is to stay in the home."
Mortgage banks and investors aren't just doing this out of the kindness of their hearts. Workouts look better from a public relations standpoint and usually cost thousands of dollars less than full foreclosures and home repossessions. They also keep lenders from having to slog through the foreclosure process, which in some states can drag on for a year and a half or more. Regardless of lenders' motivations, the trend toward increased workouts means borrowers have a much better chance today of avoiding eviction than in the past.
"Put yourself in the bank's shoes," says Mory Brenner, a Pittsfield, Mass. attorney who works with borrowers in foreclosure. "The person has missed one payment or two payments and you know in your state that if the thing goes to foreclosure, you're going to be looking at getting no payments for a year and a half and at the end of the year and a half, now you're going to have to market a distressed property.
"Are you going to want to help the borrower make their payments? Absolutely."
The workout wheel starts turning once a borrower payment becomes 16 days late. The servicer will try to get in touch with the customer at that point and figure out a way to bring the payment current. After the first payment becomes 30 days delinquent and the next month's payments look to be in jeopardy, collection attempts get more and more serious. By about 90 or 100 days, the servicer will refer the mortgage to an attorney or other representative, who will initiate the formal foreclosure process.