KEVIN KILEY
‘Generally supportive’

With the number of homeowners in jeopardy of losing their homes through foreclosure growing, a nonprofit organization on Cape Cod is trying to team up with banks to help borrowers who are struggling to pay their monthly mortgage payments.

The Housing Assistance Corp., a Hyannis-based group that has been offering foreclosure prevention counseling for more than a decade, wants to partner with local banks to identify and help borrowers as soon as they start falling behind on mortgage payments.

The effort comes at a time when foreclosure filings on Cape Cod have surged. A total of 446 petitions to foreclose were filed in Barnstable County at the Massachusetts Land Court from January through August of this year – an 87 percent jump from a year earlier when 238 petitions to foreclose were filed, according to The Warren Group, parent company of Banker & Tradesman.

“There have always been people who fall behind on their mortgage payment for whatever reason – temporary illness, job loss,” said Nancy Davison, vice president of operations for the Housing Assistance Corp., or HAC. “However, of late we’ve been witnessing an increased demand from people who have fallen behind.”

Davison said within the past 12 months, HAC has seen a dramatic jump in the number of phone calls from homeowners who have missed mortgage payments. A foreclosure prevention counselor at HAC reported that she had received 52 phone messages in one day from homeowners – including 18 calls from new clients – who were having problems keeping up with mortgage payments.

The problems on Cape Cod reflect what’s happening nationwide. RealtyTrac, an online source on foreclosure sales, reported a spike in August foreclosures. Some 115,292 properties entered into foreclosure in August – 24 percent more than July and 53 percent higher than a year earlier, according to RealtyTrac.

The delinquency rate for mortgage loans on one- to four-unit residential properties stood at 4.39 percent in the second quarter, up 5 basis points from a year earlier, according to the Washington, D.C.-based Mortgage Bankers Association.

‘In Trouble’
Housing experts are blaming the rise in foreclosure filings on the increasing popularity of various non-traditional loan products, including interest-only and option-payment adjustable-rate mortgages, which have put many borrowers at risk as interest rates have crept up.

They also say many homeowners have refinanced multiple times, tapping into their home equity to pay off credit card debt, and exchanging traditional fixed-rate loans with some of those riskier adjustable-rate mortgages.

“People have refinanced and refinanced above their ability to repay,” said Davison. “They’re not refinancing to take advantage of reduced interest [rates]. They’re refinancing and taking money out of the deal.”

Davison explained that many homeowners who are now in financial trouble have refinanced multiple times to make home improvements and have included credit card debt in their new loans.

“Then if there’s blip on the radar screen, like a job loss, that’s when they get in trouble,” she said. “Those folks are the first ones to be affected in their ability to pay their mortgage.”

Davison said she wants to meet with the leaders of local banks who are servicing mortgages on Cape Cod to try to form a partnership that will enable the banks to notify HAC – which is certified by the U.S. Department of Housing and Urban Development to provide counseling services – when a homeowner begins missing mortgage payments. Davison said a similar arrangement already exists with the Massachusetts Housing Partnership, which administers the SoftSecond mortgage loan program.

The SoftSecond program combines a conventional first mortgage with a second bank mortgage that is supported by a one-time state subsidy and offers borrowers loans with below-market interest rates and 3 percent down payments.

HAC is notified when a borrower who has a SoftSecond loan on Cape Cod falls 30 days behind on mortgage payments. This early notification has been “extremely successful” in preventing foreclosure for those homeowners, Davison said.

“We find that sometimes just a letter or telephone call is sufficient to help those who have the means to continue on,” she said.

Davison said HAC has tried to set up similar relationships with banks in the past but privacy issues have prevented local banks from sharing information about borrowers. By setting up partnerships, Davison said, she is hoping that banks will be able to share some information early on and help people hold onto their homes.

Doug Robinson, a spokesman for NeighborWorks America – a national nonprofit group that is trying to reduce the rate of foreclosures – said banks can suggest to borrowers that they call a specific counseling agency or nonprofit group for help. But banks cannot release a borrower’s private information unless they have approval from the homeowner. “The borrower has to affirmatively allow the nonprofit access to private information,” he said.

Many homeowners are embarrassed when they fall behind on mortgage payments and are reluctant to reach out for help, explained Robinson.

NeighborWorks Center for Foreclosure Solutions hosted a symposium and training institute on foreclosure prevention last month in Washington, D.C., that Davison attended.

Kevin Kiley, executive vice president and chief operating officer of the Massachusetts Bankers Association, said banks are sensitive to the privacy concerns of consumers and the key is to get authorization from homeowners to share information with outside groups that provide counseling.

The Massachusetts Bankers Association has structured a foreclosure prevention program that currently enables members to refer homeowners who are facing economic hardship to seven nonprofit groups.

“The idea and the concept that [HAC] is suggesting and proposing is something that we are generally supportive of,” he said.

But Kiley pointed out that the majority of foreclosures stem from non-bank entities.

In looking at foreclosure data earlier this year, MBA found that out of 275 notices of foreclosure filed in Suffolk County during the first week of May, only five were filed by local banks or credit unions, according to Kiley. The rest were filed by out-of-state lenders and national servicers and subprime lenders, he said.

“Those are the principals that are most active in the areas of foreclosure,” he said.

Davison said there is a common misconception that banks want to repossess homes when borrowers fail to make payments. “The misconception is out there so there is a tremendous amount of fear and embarrassment, which is why people don’t come forward to tell about their household problems,” she said.

Often, borrowers don’t realize they have options to prevent foreclosure and that lenders are not eager to seize properties and foreclose on them, according to Robinson.

One of the most effective ways to stem foreclosures is to have local nonprofit groups work with lenders to help homeowners, Robinson added.

“What that nonprofit does is act as a dispassionate third party to weigh the needs of the lender and borrower,” he said. “What’s driven the foreclosure often is more than one [problem]. The nonprofit can provide counseling to help the homeowner deal with a myriad of issues.”

Homeowners who have fallen behind on several monthly mortgage payments may be able to tack on late payments to the back of a loan, explained Robinson, or the lender might be able to set up payment plan if a borrower is employed.

In some cases, a nonprofit or state organization might be able to help homeowners make up missed payments.

“You as a consumer don’t know any of these things until you call the lender or the nonprofit,” he said. “The consumer has to take action.”