Campbell Communication survey: Mortgage servicers need to educate borrowers before defaultMortgagePress.comMortgage servicers, defaults, Campbell Communications, Homeowner Attitudes Regarding Mortgage Payments under Financial Stress
Lenders and servicers too often ignore the psychology of their
borrowers when forming strategies to prevent mortgage defaults.
They should focus on borrowers who are current on their loans and
not just those who are delinquent. That's one of the major findings
of a new study of mortgage borrower behavior during periods of
financial stress.
The research, based on a nationwide survey of homeowners
conducted by Campbell Communications in August and September titled
"Homeowner Attitudes Regarding Mortgage Payments under Financial
Stress," provides new insight into the current mortgage crisis by
examining what happens when borrowers face financial trouble and
how they prioritize credit payments. The study also examined
borrower attitudes toward late fees and penalties as well as a
number of other delinquency and default issues.
One of the most significant areas of focus in the new study
relates to the changing psychology of homeowners as they get behind
on their mortgage payments. The survey results suggest that
borrowers are much more willing to take steps to avoid foreclosure
before become delinquent. Once they get behind on payments, they
look at ways to stay in their homes and delay eviction as long as
possible.
For borrowers who were current on their mortgage, the study
found that more than two-thirds of survey respondents would plan to
sell their homes if they were unable to pay their loans. However,
the share of respondents willing to sell dropped to less than half
for borrowers already delinquent on their mortgages.
"The survey results provide a fascinating insight into the plans
and psychology of homeowners with mortgages," said Tom Popik,
designer of the Campbell Communications survey. "In general, the
survey results indicate that if servicers wish to educate borrowers
or positively influence their behavior, they stand the best chance
of doing this before the borrower has gone into default."
One of the more surprising findings in the new study was how
little borrowers knew about their legal liability if they were to
participate in a short-sale of their property, abandon their home,
or just default on their mortgage. Less than one-fifth of all
survey respondents recognized any potential financial consequence
from any of these actions.
"After default, borrowers tend to put aside plans such as
selling their house to pay off the mortgage," Popik noted.
"Instead, they develop alternative plans that result in a higher
loss severity for servicers or investors, such as declaring
bankruptcy or staying in the house until eviction. They also
generally are unaware of the financial repercussions of defaulting
on their mortgages."
The study found a strong correlation between equity in a home
and mortgage borrower performance. For example, borrowers with some
home equity were more than 2-1/2 times more likely to plan to sell
their home if they were unable to pay their mortgage as borrowers
without equity. Similarly, borrowers with negative home equity were
much more likely to be delinquent on their mortgage than borrowers
with positive home equity.
The number one reason cited by respondents for not making
mortgage payments in periods of financial stress was "increase in
monthly payments." And somewhat surprisingly, more than
three-quarters of respondents who were past due on their mortgage
were willing to have missed payments, penalties and late fees added
to their mortgage balance if it helped them avoid foreclosure.
For more information, visit www.campbellsurveys.com.
