NASHVILLE, Tenn. — For those involved in the credit union mortgage business, foreclosures are sad but necessary if all attempts at workouts fail. Sometimes, it's just not possible to keep people in their homes, said CU officials here attending a breakout session on loss mitigation and foreclosure avoidance.

Robin Stout-Migala is senior delinquency resolution manager for Freddie Mac. She's been involved in handling negotiations for modifications, short sales, payoffs and other alternatives and has 18 years of experience in default servicing and real estate owned.

Right now she's busy trying to help borrowers, many of whom did not get their loans through CUs, deal with anxiety and help servicers with early intervention efforts that can lower the chances of a home going into foreclosure. The crowds, she said, can be a bit overwhelming. In areas where home prices escalated and are dropping like rocks (Florida, California and parts of the Midwest, particularly Detroit), it's especially emotional, she said.

“I attended a foreclosure seminar in Detroit last February that was organized by the state attorney general. There were 3,000 people there,” said Stout-Migala. “And that was a good thing because the fact is that 50% of borrowers go into foreclosure without even speaking to their lenders. That's half of foreclosures, and we need to do better than that.”

Stout-Migala said that grocers there are even discounting some food items because many go bad before they can be purchased. “There's not enough people left to buy. And you can't rent a U-Haul in Detroit because they're all rented.”

The biggest reason people lose their homes is because they've lost their jobs, she said. In Detroit, hard hit by the downturn in the auto industry with its layoffs and plant closings, that's the clear case. Job loss accounts for 43% of delinquencies in home payments. Illness in the family runs second at 22%. Buying more house than the borrower can afford (combined with other debt or excessive obligations) was third at 16%. In lower percentages were marital difficulties (6.6%) and a death in the family (3.8%).

What “keeps me up at night,” Stout-Migala said, is the prospect of rising interest rates while home values continue to drop. That dual whammy will make it hard to do workout loans and puts more homeowners underwater. Higher volume in foreclosures is also scary, and increasing fraud activity is another gnawing problem.

It's an understatement, she said, but the fundamentals will still apply: borrowers must make mortgage payments their first priority, a declining circumstance nowadays, and manage their budgets to avoid other overspending. A little nest egg can go a long way to avoiding foreclosure. The servicers need to keep trying to find a way to make things work if at all possible or find ways to keep the losses as low as possible.

The earlier the intervention, the better, said Stout-Migala. Because people facing foreclosure go through stages of grief similar to those dealing with the death of a loved one, where acceptance comes long after denial. It's critical to educate borrowers through the media because that's when loan scammers pounce.

There is help out there, she said, including, the Hope Now Alliance, Project Lifeline, FHASecure and community groups like NeighborWorks that can counsel borrowers on how to work with servicers to arrange a possible workout. Technology can offer help too, like Freddie Mac's Workout Prospector, a tool to structure alternatives (www.freddiemac.com/service/factsheets) available to lenders and servicers.

–cburger@cutimes.com

Instant Insights /

Avoiding Foreclosures: Early Action Can Help Borrowers Remain in Their Homes

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