Foreclosure Consumer Concerns for Older Americans
Steps That Advocates Can Take To Help Prevent Foreclosure
Foreclosure or the threat of foreclosure can be devastating for seniors. Older homeowners fall behind on their mortgages for many reasons: sudden decreases in income due to the loss of a spouse; poor financial management which contributes to nonpayment of utility bills, service shutoffs and liens against the property; failure to perform necessary repairs and maintenance which makes the property uninhabitable; second mortgage or scams which make impossible demands on the homeowner’s limited resources. All of these contributing factors can be addressed by skilled advocates--if homeowners turn to them in time. This issue of Consumer Concerns for Older Americans examines some of the measures that legal and non-legal advocates for the elderly can take to defend homeowners at risk of foreclosure.
How Foreclosures Work
Foreclosure procedures vary from state to state. The procedures are established by state statutes, by case law, and by local practice. In about half of the states, foreclosures are court proceedings. First the creditor files a suit in a court located near the property. Unless the homeowner files an answer successfully contesting the foreclosure, a judgment is entered for the creditor. The home is then sold under court supervision.
Other states have “non-judicial” foreclosures. Creditors foreclose by simply advertising the home for sale, using a legal notice in a newspaper. If homeowners want to contest this type of foreclosure, they must file a lawsuit and ask the court to stop the sale. Sometimes if the homeowner wants the court to stop the foreclosure, the homeowner must file a bond to protect the creditor. Unless the homeowner initiates a court proceeding, there is no judicial involvement in such a foreclosure.
Some states allow both types of foreclosure, judicial and non-judicial. Practicality and local custom usually dictate a creditor’s choice of one type over the other.
Consumer Strategies When Foreclosure Is Threatened
When a homeowner first becomes worried about meeting mortgage payments, advocates can recommend that a series of steps be taken to reduce the risk of foreclosure:
Get Legal Advice. Because foreclosure is a harsh legal process, homeowners threatened with foreclosure should immediately obtain legal help. Possible sources of legal help are the neighborhood legal services office, a bar association panel of pro bono attorneys, or a program providing legal assistance for the elderly. A competent attorney can determine whether there are legal defenses to a foreclosure.
Too often, homeowners either postpone consulting a lawyer until after the time to assert their legal rights has passed, or walk away from their homes in frustration, leaving themselves without any equity and vulnerable to deficiency claims. For each foreclosure situation, a counselor or lawyer must carefully evaluate the homeowners’ objectives and interests.
Homeowners should, however, avoid “quick fix” attorneys who may advertise or solicit through the mail from published foreclosure lists. Many times these practitioners will push the homeowner to file a bankruptcy prematurely. A bankruptcy may be necessary at some point. But, as with many things, proper timing may be critical.
Keep Current on Home Payments. The homeowner should not pay credit card debts, doctor bills or other low priority debts ahead of home mortgage payments. Skipping payments on low priority debts for several months may have few bad consequences. Skipping one or two home mortgage payments may subject the homeowner to loss of the home.
Apply for Income Maintenance, Tax Abatement and Public Assistance Programs. Benefits provided by government and non-profit agencies are a key source of assistance for individuals in financial distress. These resources can help older homeowners free their income for home payments. Benefit programs to apply for may include fuel assistance and weatherization assistance, food stamps and emergency home repair programs. Most municipalities also offer property tax abatements for reasons of age or hardship. For very low-income homeowners, particularly those who are recently widowed, advocates should also determine the homeowner’s eligibility for Supplemental Security Income.
The process of obtaining these benefits is often slow and difficult. When necessary, shepherd individuals through the bureaucratic maze, ensuring that application procedures are understood and that all documentation is properly assembled and delivered.
Negotiate with the Mortgage Company or Servicer. It may be useful to ask the mortgage company to agree to a temporary or permanent change in the mortgage terms, commonly called a “workout.” More and more creditors are realizing that foreclosure is a losing proposition for the lender, and that they are better off keeping the consumer in the home making whatever payments the household can afford. It is important to contact the lender early, as soon as the homeowner begins experiencing financial difficulties. Although consumers may attempt to arrange a workout on their own, it is best if they are assisted by an experienced attorney or mortgage counselor. If the loan is guaranteed by a federal or state funded agency, the lender may be required to provide certain assistance and options to the homeowner to try to avoid foreclosure.
Some workouts that lenders may accept include:
Payment arrangements including “forbearance,” “reinstatement,” or “deferral” agreements. These involve curing a default by making regular payments as they are due and making partial payments on the arrears.
Temporary interest rate reduction. Generally this will also require a reasonable plan to increase income to make future payments.
Recasting missed payments. This usually involves deferring the missed payments to the end of the loan.
Permanent interest rate reduction.
Extension of the loan period.
Reamortization/capitalization of arrears.
Reduction of the principal balance.
Refinance the Home Debt. If the homeowner has equity in the home, refinancing may allow the homeowner to avoid foreclosure. A refinance called a “reverse mortgage” may be especially useful for seniors. Such a reverse mortgage may reduce or eliminate the need for a senior to make a monthly mortgage payment. Advocates should keep in mind, however, that many refinancing schemes are frauds. Even legitimate refinancing options that look like an improvement on closer inspection are far more costly than the existing mortgage. The major disadvantages to refinancing residential debts are the increased finance charges that result from extending the repayment period, the possibility of having to pay points, the additional closing costs, and prepayment penalties on old mortgages. The feasibility of refinancing depends on whether the homeowner can obtain a loan at a reasonable rate, usually from a savings bank, a commercial bank, a credit union, or a legitimate mortgage company. Most finance companies and certain mortgage companies do not make residential loans at reasonable rates and terms.
Consider Selling the House Before Foreclosure. When foreclosure is threatened, a homeowner may wish to contact a local realtor to obtain an appraisal or a broker’s price opinion of the home’s value. Doing so provides the owner with information about the home’s marketability and its likely sale price, without necessarily obligating the owner to sell.
Most homeowners do not want to give up their homes, but sometimes no other solution exists. Selling the house may be painful, but it is always a better solution than letting a bank sell the house. If they find a buyer, homeowners may sell their home privately before a foreclosure sale takes place. If more is owed on the mortgage than the house can be sold for, it may be possible to get the mortgage company’s consent to sell the home at a price that is less than the amount owed.
Consider Filing Bankruptcy. Homeowners who are about to lose their homes should carefully consider filing a petition in bankruptcy. This can stop the foreclosure process and allow them time to regroup and try to work out a plan to keep the home. Bankruptcy may also help them cure past defaults and make future payments. However, the bankruptcy option is complicated and it is a good idea to seek professional assistance from an attorney specializing in bankruptcy. Bankruptcy law requires almost all debtors to receive budget and credit counseling within 180 days before the bankruptcy case is filed. Homeowners who are considering bankruptcy should obtain credit counseling from an approved agency well before they need to file the bankruptcy case.
Deed in Lieu of Foreclosure. Homeowners often will be tempted to turn over their deed to the creditor instead of fighting the foreclosure. This is generally a good idea only if the borrower will receive something from the creditor in return for saving it the trouble of foreclosing. Fore example, if the home’s value exceeds the amount of the indebtedness, the homeowner may want to ask the creditor to agree not to seek further collection remedies. Some lenders will even agree to pay a small amount of cash for a deed in lieu in order to help the homeowner move. However, by turning over the deed to the mortgage holder, the consumer may forfeit any right to equity in the home. Similarly, the consumer may have valid claims or defenses against the creditor that would be lost by turning over the deed. If the consumer does offer the creditor a deed in lieu of foreclosure, make sure that there is a written agreement giving them sufficient time to vacate the premises in order to find alternative housing and move in an orderly fashion.
Foreclosure or the threat of foreclosure can be devastating for seniors. Older homeowners fall behind on their mortgages for many reasons: sudden decreases in income due to the loss of a spouse; poor financial management which contributes to nonpayment of utility bills, service shutoffs and liens against the property; failure to perform necessary repairs and maintenance which makes the property uninhabitable; second mortgage or scams which make impossible demands on the homeowner’s limited resources. All of these contributing factors can be addressed by skilled advocates--if homeowners turn to them in time. This issue of Consumer Concerns for Older Americans examines some of the measures that legal and non-legal advocates for the elderly can take to defend homeowners at risk of foreclosure.
How Foreclosures Work
Foreclosure procedures vary from state to state. The procedures are established by state statutes, by case law, and by local practice. In about half of the states, foreclosures are court proceedings. First the creditor files a suit in a court located near the property. Unless the homeowner files an answer successfully contesting the foreclosure, a judgment is entered for the creditor. The home is then sold under court supervision.
Other states have “non-judicial” foreclosures. Creditors foreclose by simply advertising the home for sale, using a legal notice in a newspaper. If homeowners want to contest this type of foreclosure, they must file a lawsuit and ask the court to stop the sale. Sometimes if the homeowner wants the court to stop the foreclosure, the homeowner must file a bond to protect the creditor. Unless the homeowner initiates a court proceeding, there is no judicial involvement in such a foreclosure.
Some states allow both types of foreclosure, judicial and non-judicial. Practicality and local custom usually dictate a creditor’s choice of one type over the other.
Consumer Strategies When Foreclosure Is Threatened
When a homeowner first becomes worried about meeting mortgage payments, advocates can recommend that a series of steps be taken to reduce the risk of foreclosure:
Get Legal Advice. Because foreclosure is a harsh legal process, homeowners threatened with foreclosure should immediately obtain legal help. Possible sources of legal help are the neighborhood legal services office, a bar association panel of pro bono attorneys, or a program providing legal assistance for the elderly. A competent attorney can determine whether there are legal defenses to a foreclosure.
Too often, homeowners either postpone consulting a lawyer until after the time to assert their legal rights has passed, or walk away from their homes in frustration, leaving themselves without any equity and vulnerable to deficiency claims. For each foreclosure situation, a counselor or lawyer must carefully evaluate the homeowners’ objectives and interests.
Homeowners should, however, avoid “quick fix” attorneys who may advertise or solicit through the mail from published foreclosure lists. Many times these practitioners will push the homeowner to file a bankruptcy prematurely. A bankruptcy may be necessary at some point. But, as with many things, proper timing may be critical.
Keep Current on Home Payments. The homeowner should not pay credit card debts, doctor bills or other low priority debts ahead of home mortgage payments. Skipping payments on low priority debts for several months may have few bad consequences. Skipping one or two home mortgage payments may subject the homeowner to loss of the home.
Apply for Income Maintenance, Tax Abatement and Public Assistance Programs. Benefits provided by government and non-profit agencies are a key source of assistance for individuals in financial distress. These resources can help older homeowners free their income for home payments. Benefit programs to apply for may include fuel assistance and weatherization assistance, food stamps and emergency home repair programs. Most municipalities also offer property tax abatements for reasons of age or hardship. For very low-income homeowners, particularly those who are recently widowed, advocates should also determine the homeowner’s eligibility for Supplemental Security Income.
The process of obtaining these benefits is often slow and difficult. When necessary, shepherd individuals through the bureaucratic maze, ensuring that application procedures are understood and that all documentation is properly assembled and delivered.
Negotiate with the Mortgage Company or Servicer. It may be useful to ask the mortgage company to agree to a temporary or permanent change in the mortgage terms, commonly called a “workout.” More and more creditors are realizing that foreclosure is a losing proposition for the lender, and that they are better off keeping the consumer in the home making whatever payments the household can afford. It is important to contact the lender early, as soon as the homeowner begins experiencing financial difficulties. Although consumers may attempt to arrange a workout on their own, it is best if they are assisted by an experienced attorney or mortgage counselor. If the loan is guaranteed by a federal or state funded agency, the lender may be required to provide certain assistance and options to the homeowner to try to avoid foreclosure.
Some workouts that lenders may accept include:
Payment arrangements including “forbearance,” “reinstatement,” or “deferral” agreements. These involve curing a default by making regular payments as they are due and making partial payments on the arrears.
Temporary interest rate reduction. Generally this will also require a reasonable plan to increase income to make future payments.
Recasting missed payments. This usually involves deferring the missed payments to the end of the loan.
Permanent interest rate reduction.
Extension of the loan period.
Reamortization/capitalization of arrears.
Reduction of the principal balance.
Refinance the Home Debt. If the homeowner has equity in the home, refinancing may allow the homeowner to avoid foreclosure. A refinance called a “reverse mortgage” may be especially useful for seniors. Such a reverse mortgage may reduce or eliminate the need for a senior to make a monthly mortgage payment. Advocates should keep in mind, however, that many refinancing schemes are frauds. Even legitimate refinancing options that look like an improvement on closer inspection are far more costly than the existing mortgage. The major disadvantages to refinancing residential debts are the increased finance charges that result from extending the repayment period, the possibility of having to pay points, the additional closing costs, and prepayment penalties on old mortgages. The feasibility of refinancing depends on whether the homeowner can obtain a loan at a reasonable rate, usually from a savings bank, a commercial bank, a credit union, or a legitimate mortgage company. Most finance companies and certain mortgage companies do not make residential loans at reasonable rates and terms.
Consider Selling the House Before Foreclosure. When foreclosure is threatened, a homeowner may wish to contact a local realtor to obtain an appraisal or a broker’s price opinion of the home’s value. Doing so provides the owner with information about the home’s marketability and its likely sale price, without necessarily obligating the owner to sell.
Most homeowners do not want to give up their homes, but sometimes no other solution exists. Selling the house may be painful, but it is always a better solution than letting a bank sell the house. If they find a buyer, homeowners may sell their home privately before a foreclosure sale takes place. If more is owed on the mortgage than the house can be sold for, it may be possible to get the mortgage company’s consent to sell the home at a price that is less than the amount owed.
Consider Filing Bankruptcy. Homeowners who are about to lose their homes should carefully consider filing a petition in bankruptcy. This can stop the foreclosure process and allow them time to regroup and try to work out a plan to keep the home. Bankruptcy may also help them cure past defaults and make future payments. However, the bankruptcy option is complicated and it is a good idea to seek professional assistance from an attorney specializing in bankruptcy. Bankruptcy law requires almost all debtors to receive budget and credit counseling within 180 days before the bankruptcy case is filed. Homeowners who are considering bankruptcy should obtain credit counseling from an approved agency well before they need to file the bankruptcy case.
Deed in Lieu of Foreclosure. Homeowners often will be tempted to turn over their deed to the creditor instead of fighting the foreclosure. This is generally a good idea only if the borrower will receive something from the creditor in return for saving it the trouble of foreclosing. Fore example, if the home’s value exceeds the amount of the indebtedness, the homeowner may want to ask the creditor to agree not to seek further collection remedies. Some lenders will even agree to pay a small amount of cash for a deed in lieu in order to help the homeowner move. However, by turning over the deed to the mortgage holder, the consumer may forfeit any right to equity in the home. Similarly, the consumer may have valid claims or defenses against the creditor that would be lost by turning over the deed. If the consumer does offer the creditor a deed in lieu of foreclosure, make sure that there is a written agreement giving them sufficient time to vacate the premises in order to find alternative housing and move in an orderly fashion.
Beware of Foreclosure Rescue Scams
Foreclosure rescue scams are real. The people behind these scams prey on struggling homeowners who don't know where to turn for help. Scam artists often target defendants named in a foreclosure proceedings. Don't let them take advantage of you, your situation, your house, or your money.
The best way to avoid becoming a victim is to get informed and ask a lot of questions. If you receive an offer, information, or advice that sounds too good to be true, then it probably is. Here are some tips:
Know the person you do business with. The U.S. Department of Housing and Urban Development (HUD) sponsors many housing counseling agencies that can help you with questions relating to foreclosure and credit issues. Before responding to any person or organization offering to "save" you from foreclosure, check that the organization is HUD-approved at www.hud.gov/counseling.
Beware of anyone who says that you don't need a real estate professional or title company when selling your home. You should always have a real estate professional, attorney, or a title company to help you with any transaction involving your home and protect your interests.
Don't be pressured to sign papers immediately or to transfer the deed of your house. Do not sign over the deed to your property to any organization or individual if you are not working directly with your mortgage lender to forgive your debt.
Additionally, don't sign papers in exchange for a promise that someone else will pay off your mortgage. ALWAYS be sure to read and understand all paperwork before signing to ensure that you are not unknowingly giving someone else ownership of your home.
Beware of anyone who tells you that a buyer will purchase your home for the balance owed on your loan, plus an additional cash payment to you. Never make mortgage payments to anyone other than your lender, unless you have spoken personally to your lender about this. Scammers might ask you to make your payments to them; however, they pocket your payments instead of sending them to the lender.
Cantact me with any questions regarding your Mortgage Anthony Landaeta tlandaeta@aol.com
The best way to avoid becoming a victim is to get informed and ask a lot of questions. If you receive an offer, information, or advice that sounds too good to be true, then it probably is. Here are some tips:
Know the person you do business with. The U.S. Department of Housing and Urban Development (HUD) sponsors many housing counseling agencies that can help you with questions relating to foreclosure and credit issues. Before responding to any person or organization offering to "save" you from foreclosure, check that the organization is HUD-approved at www.hud.gov/counseling.
Beware of anyone who says that you don't need a real estate professional or title company when selling your home. You should always have a real estate professional, attorney, or a title company to help you with any transaction involving your home and protect your interests.
Don't be pressured to sign papers immediately or to transfer the deed of your house. Do not sign over the deed to your property to any organization or individual if you are not working directly with your mortgage lender to forgive your debt.
Additionally, don't sign papers in exchange for a promise that someone else will pay off your mortgage. ALWAYS be sure to read and understand all paperwork before signing to ensure that you are not unknowingly giving someone else ownership of your home.
Beware of anyone who tells you that a buyer will purchase your home for the balance owed on your loan, plus an additional cash payment to you. Never make mortgage payments to anyone other than your lender, unless you have spoken personally to your lender about this. Scammers might ask you to make your payments to them; however, they pocket your payments instead of sending them to the lender.
Cantact me with any questions regarding your Mortgage Anthony Landaeta tlandaeta@aol.com
Act Now to Avoid Foreclosure
If you have fallen behind on your mortgage payments, or if your loan has been referred to an attorney, you may still have time to save your home. You should act quickly to avoid losing your home. The most important step you can take is to get help early from your mortgage lender, servicer, or housing counselor.
If you delay and fall further behind in your payments, you are likely to have fewer options. Finding a solution that avoids foreclosure is better for you and better for your mortgage lender. Foreclosure damages your credit rating and your ability to borrow money or buy a home in the future.
It is important to be open and honest about your financial situation with your servicer or counselor. Here are important steps to take immediately:
Cantact me with any questions regarding your Mortgage Anthony Landaeta tlandaeta@aol.com
Call your lender or loan servicer to talk about your situation. You can find the contact information on your monthly mortgage statement or coupon book.
If you can't reach your lender or servicer or you do not receive help, contact the Homeownership Preservation Foundation at 1-888-995-HOPE. Experienced counselors can help you develop the best plan for your personal financial situation. This counseling is free.
Gather the information you will need. You will be asked to provide:
letters or communications from your lender,
foreclosure notices,
recent mortgage statements showing your loan number,
homeowner's insurance policy,
last two pay stubs and most recent tax return for all borrowers named on the mortgage,
proof of other income, such as child support, alimony, Social Security, or pension,
bank account statements, and
list of major monthly bills, including child care, utilities, credit cards, and cell phone.
Understand your options. Depending on your situation, you may have several options to discuss with your servicer or counselor. They could include:
Repayment Plan--You may be able to catch up on missed payments by creating a schedule for repaying the past-due amount.
Modification--In some cases, mortgage loan terms can be changed on a temporary or permanent basis to make the payment more affordable.
Your financial situation may have changed significantly since you qualified for your home due to unemployment, divorce, job change/relocation, or medical issues. You may want or need to sell your home as a result of this change. There are options for borrowers who are worried about possible foreclosure:
Pre-foreclosure or Short-Sale--Servicers work with borrowers to sell their home and use the proceeds to pay off the loan even if the proceeds are not enough to settle the entire balance.
Deed-in-lieu--Borrowers sign over title to the property to Fannie Mae without the expense of foreclosure.
You have more options if you act quickly. Now is the time to ask for help!
If you delay and fall further behind in your payments, you are likely to have fewer options. Finding a solution that avoids foreclosure is better for you and better for your mortgage lender. Foreclosure damages your credit rating and your ability to borrow money or buy a home in the future.
It is important to be open and honest about your financial situation with your servicer or counselor. Here are important steps to take immediately:
Cantact me with any questions regarding your Mortgage Anthony Landaeta tlandaeta@aol.com
Call your lender or loan servicer to talk about your situation. You can find the contact information on your monthly mortgage statement or coupon book.
If you can't reach your lender or servicer or you do not receive help, contact the Homeownership Preservation Foundation at 1-888-995-HOPE. Experienced counselors can help you develop the best plan for your personal financial situation. This counseling is free.
Gather the information you will need. You will be asked to provide:
letters or communications from your lender,
foreclosure notices,
recent mortgage statements showing your loan number,
homeowner's insurance policy,
last two pay stubs and most recent tax return for all borrowers named on the mortgage,
proof of other income, such as child support, alimony, Social Security, or pension,
bank account statements, and
list of major monthly bills, including child care, utilities, credit cards, and cell phone.
Understand your options. Depending on your situation, you may have several options to discuss with your servicer or counselor. They could include:
Repayment Plan--You may be able to catch up on missed payments by creating a schedule for repaying the past-due amount.
Modification--In some cases, mortgage loan terms can be changed on a temporary or permanent basis to make the payment more affordable.
Your financial situation may have changed significantly since you qualified for your home due to unemployment, divorce, job change/relocation, or medical issues. You may want or need to sell your home as a result of this change. There are options for borrowers who are worried about possible foreclosure:
Pre-foreclosure or Short-Sale--Servicers work with borrowers to sell their home and use the proceeds to pay off the loan even if the proceeds are not enough to settle the entire balance.
Deed-in-lieu--Borrowers sign over title to the property to Fannie Mae without the expense of foreclosure.
You have more options if you act quickly. Now is the time to ask for help!
J.P. Morgan Chase Unveils Mortgage Foreclosure Program
J. P. Morgan Chase & Company has announced that it will make its own contribution to stemming the tide of foreclosures sweeping the country by modifying around $70 billion of its owned mortgages that are in or nearing default.
The bank's efforts will focus on restructuring loans for borrowers who are at risk of foreclosure and it has placed a 90 day moratorium on all foreclosures in order to put guidelines for its program in place. The company will hire and train an estimate 300 additional loan counselors (it currently employs about 2,500) and open two dozen new regional counseling centers.
The company has targeted 400,000 families for the rescue program. This is in addition to what it claims are 250,000 families which have already been helped in the earlier restructure of some $40 billion in loans.
The bank is also a major servicer of loans owned by others. Its own mortgages account for only 20 percent of the total portfolio it controls. (The Wall Street Journal pegs the number at only 4.7 percent.) The restructuring program will not, at least at present, apply to those serviced mortgages however it hopes that eventually the initiative can be expanded to include some of the investor owned loans.
The Chase program joins one previously announced by the Federal Deposit Insurance Corporation (FDIC) for the assets it has taken from the failed IndyMac Bank which was a major player in the mortgage industry. Bank of American has also started a modification program as did Wachovia Bank shortly before it was taken over by Wells Fargo Bank.
The FDIC decided, after its experience in the banking and savings and loan crises of the late 1980's and early 1990's that there was a far greater recovery possible from working with borrowers to modify loans than in foreclosing on the underlying collateral. It has been trying to convey the wisdom of shoring up homeowners to the Federal Reserve and the Treasury Department which appeared to be focused on the recovery of financial institutions and the credit market. FDIC Chairman Sheila Bair has submitted a plan for White House consideration which would help three million homeowners facing mortgage defaults.
According to an article in The WSJ about the Chase program 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010 and approximately 4.3 million of them will actually lose their homes.
While Chase plans to work with holders of all types of mortgage loans, a particular emphasis of the new program will be on pay-option adjustable rate mortgages. These now widely discredited instruments allowed borrowers to make a monthly payment that might not even be sufficient to cover the mortgage interest, the balance of which was added to the principle in a variation on negative amortization loans. While the borrower could certainly make a payment that covered the interest or a regular interest and principal payment most opted for the lowest required amount. Chase inherited a large number of these pay-option loans when it acquired the failing Washington Mutual Bank and EMC.
According to CNNMoney.com, the bank will offer borrowers affordable 30-year fixed-rate loans or 10-year interest only loans where principal payments are deferred and may be forgiven over a period of years or until the house is sold.
One particularly unusual feature of the Chase plan is their intention to go to the borrower. Caseworkers will review the entire bank-owned portfolio to determine loans that can benefit from the program and will then contact the borrowers. Hopefully this will eliminate the frustration experienced by many troubled homeowners who have been unable to reach appropriate help or get any response to their requests for assistance.
According to CNN Charley Scharf, CEO of Retail Financial Services at Chase said of the program, "While Chase has helped many families already, we feel it is our responsibility to provide additional help to homeowners during these challenging times. We will work with families who want to save their homes but are struggling to make their payments."
The bank's efforts will focus on restructuring loans for borrowers who are at risk of foreclosure and it has placed a 90 day moratorium on all foreclosures in order to put guidelines for its program in place. The company will hire and train an estimate 300 additional loan counselors (it currently employs about 2,500) and open two dozen new regional counseling centers.
The company has targeted 400,000 families for the rescue program. This is in addition to what it claims are 250,000 families which have already been helped in the earlier restructure of some $40 billion in loans.
The bank is also a major servicer of loans owned by others. Its own mortgages account for only 20 percent of the total portfolio it controls. (The Wall Street Journal pegs the number at only 4.7 percent.) The restructuring program will not, at least at present, apply to those serviced mortgages however it hopes that eventually the initiative can be expanded to include some of the investor owned loans.
The Chase program joins one previously announced by the Federal Deposit Insurance Corporation (FDIC) for the assets it has taken from the failed IndyMac Bank which was a major player in the mortgage industry. Bank of American has also started a modification program as did Wachovia Bank shortly before it was taken over by Wells Fargo Bank.
The FDIC decided, after its experience in the banking and savings and loan crises of the late 1980's and early 1990's that there was a far greater recovery possible from working with borrowers to modify loans than in foreclosing on the underlying collateral. It has been trying to convey the wisdom of shoring up homeowners to the Federal Reserve and the Treasury Department which appeared to be focused on the recovery of financial institutions and the credit market. FDIC Chairman Sheila Bair has submitted a plan for White House consideration which would help three million homeowners facing mortgage defaults.
According to an article in The WSJ about the Chase program 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010 and approximately 4.3 million of them will actually lose their homes.
While Chase plans to work with holders of all types of mortgage loans, a particular emphasis of the new program will be on pay-option adjustable rate mortgages. These now widely discredited instruments allowed borrowers to make a monthly payment that might not even be sufficient to cover the mortgage interest, the balance of which was added to the principle in a variation on negative amortization loans. While the borrower could certainly make a payment that covered the interest or a regular interest and principal payment most opted for the lowest required amount. Chase inherited a large number of these pay-option loans when it acquired the failing Washington Mutual Bank and EMC.
According to CNNMoney.com, the bank will offer borrowers affordable 30-year fixed-rate loans or 10-year interest only loans where principal payments are deferred and may be forgiven over a period of years or until the house is sold.
One particularly unusual feature of the Chase plan is their intention to go to the borrower. Caseworkers will review the entire bank-owned portfolio to determine loans that can benefit from the program and will then contact the borrowers. Hopefully this will eliminate the frustration experienced by many troubled homeowners who have been unable to reach appropriate help or get any response to their requests for assistance.
According to CNN Charley Scharf, CEO of Retail Financial Services at Chase said of the program, "While Chase has helped many families already, we feel it is our responsibility to provide additional help to homeowners during these challenging times. We will work with families who want to save their homes but are struggling to make their payments."
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