Freddie Mac and Roper Public Affairs and Media have announced the results of the nation's first-ever survey to learn why more late-paying borrowers risk losing their homes, rather than reaching out to their mortgage servicers. The borrowers never contact their lenders in over half of all foreclosure cases. The survey, conducted by telephone from Aug. 5-18, 2005 by Roper Public Affairs and Media among 2,031 U.S. homeowners aged 18 and older, was undertaken to help find out why.
The survey found that 75 percent of the delinquent borrowers surveyed recalled being contacted by their servicers. But, a substantial percentage gave a variety of reasons for neglecting to follow up with their servicers to discuss workout options. Mortgage servicers collect monthly housing payments on behalf of Freddie Mac or other investors. Specifically, 28 percent said there was no reason to talk to their servicers or that their servicers could not help them, 17 percent said they could take care of their payment problems without any help and 7 percent said they didn't call because they didn't have enough money to make the payment. Other reasons for not calling included embarrassment (6 percent), fear (5 percent) or not knowing whom to call (5 percent).
"The results of the Freddie Mac/Roper survey are a wake-up call to delinquent borrowers everywhere," said Ingrid Beckles, Freddie Mac's vice president of default asset management. "Its message is clear—when you get a phone call or letter from your servicer, don't ignore it; act on it. Pick up the phone, call your servicer and talk to them about the possibility of forbearance or some other repayment alternative, because it just may be your best chance to avoid foreclosure."
The lack of borrower follow-up may help explain why more than six in 10 (61 percent) late-paying borrowers said that they were unaware of a variety of workout options that could help them overcome short-term financial difficulties. At the same time, 92 percent said they would have talked to their servicers had they known these options were available to them. The Freddie Mac/Roper survey found no significant statistical difference in the responses given by white, black, Latino, male or female borrowers, indicating an almost universal need for more borrower education about workout options and foreclosure avoidance.
"Part of the problem is that the data shows that there's a knowledge gap—people's interest in the options available to them is quite high, but their awareness of these options is quite low," said Elizabeth Armet, vice president, senior account executive at Roper Public Affairs.
Freddie Mac requires mortgage servicers to explore several workout options with late-paying borrowers. These options include forbearance, which temporarily delays or reduces payments, and loan modifications, which can restructure the payment terms for a fixed period. Many servicers typically describe these options in their collection letters. However, it is up to borrowers to follow up with their servicers to learn more about these options.
While the likelihood of successful foreclosure avoidance depends upon each individual borrower's financial situation, a 2004 Freddie Mac study concluded that repayment plans could lower the probability of home loss by 80 percent among all borrowers and by 68 percent among low- to moderate-income borrowers.
Other notable findings from the Freddie Mac/Roper survey include:
• Eighty percent of delinquent borrower households
included at least one employed individual, and only 5 percent said
someone in their household was unemployed. Seven percent of the
respondents said that they were retired.
• Among homeowners in good standing, 62 percent were employed, 32 percent were retired and only 2 percent were unemployed.
• Delinquent borrowers earned slightly less than borrowers in good standing. The median annual income among delinquent borrowers was $52,400, compared to $56,700 for homeowners in good standing.
• Forty-seven percent of the defaulters were first-time homeowners, but 62 percent of the homeowners in good standing had owned a home in the past.
For more information, visit www.freddiemac.com.