Pain at the grass roots

Despite mounting foreclosures and loan delinquencies in Georgia, lenders and consumer advocates have been slow to rework troubled borrowers’ mortgage obligations.

Some blame unwillingness by lenders until very recently, while others say the sheer magnitude of the problem overwhelms the bankers and consumer debt counselors working on the issue. Still others blame the government, saying solutions have been focused on Wall Street instead of on the masses of desperate homeowners.

The delay, which is similar nationwide, even prompted Federal Deposit Insurance Corp. Chairwoman Sheila Bair to complain publicly last week that the recently enacted $700 billion bailout for Wall Street failed to address the root of the financial crisis —- the growing number of people who are losing their homes.

Defaults by mortgage borrowers “is what’s causing the distress at the institution level. So why not tackle the borrower problem?” Bair told The Wall Street Journal in an interview.

Foreclosures and mortgage defaults are the heart of the issue, she and others argue, because they will continue to drive down home prices and the value of securities linked to mortgages. That can further destabilize financial markets and the economy.

But for at least the past year and a half in Georgia, tens of thousands of homeowners have been falling into a financial hole each quarter, according to industry data. For each borrower who has negotiated a rescue package from his or her lender during that period, three others have fallen seriously behind on their mortgage payments.

Still, there have been glimmers of hope recently. According to consumer advocacy groups, some people facing potential foreclosure are beginning to have an easier time getting relief from their lenders. Also, a massive new program created by Congress in July that took effect this month could speed the pace of mortgage workouts. Some critics, however, fear the program could fizzle.

Flora Anders, a 59-year-old Conyers woman who is scraping by on freelance work after losing her job last year, is one such homeowner who has benefited from temporary fixes that she hopes will soon turn into permanent relief.

She said her lender has offered to retool her roughly $115,000 mortgage under the new program to reflect dropping home values.

She hopes that will result in a smaller mortgage, a lower interest rate and smaller monthly payments that will allow her to keep her house and still afford to take care of her 10-year-old granddaughter and supplement the college and living expenses of her youngest daughter.

“It looks like it’s going to happen,” said Anders, who turned to the Consumer Credit Counseling Service of Greater Atlanta last year.

She said the agency helped her when she was negotiating loan modifications that temporarily lowered her payments and averted a potential foreclosure.

“It’s been a team effort to help me keep my home,” she said, referring to her lender, as well.

But even as people like Anders found ways to hang on, tens of thousands of other Georgians have lost their homes since the end of 2006, according to industry data. A number of mostly voluntary industry programs have so far done little to slow the pace.

At least 37,273 foreclosure sales occurred in Georgia in 2007 and the first half of this year, according to data from the HOPE NOW alliance, a voluntary group of lenders and consumer groups formed last year to offer voluntary mortgage workout plans to stressed homeowners.

More than 350,000 Georgia homeowners have fallen at least 60 days behind on their mortgage payments during that period. Not all those people are likely to lose their homes. But the total —- more than triple the number of mortgage workout plans negotiated during the same period —- points to a growing workload for organizations and companies that specialize in helping borrowers to negotiate loan modifications and repayment plans with lenders.

After the stock market plunged, “we had a real spike in calls,” said John McCosh, spokesman for the Consumer Credit Counseling Service. “People are scared.”

So, apparently, are bankers and other lenders.

McCosh said lenders recently have become more cooperative when the organization’s debt counselors seek mortgage workouts for clients.

The nonprofit organization, whose services are free and confidential, works with clients to prepare personal budgets and helps them to renegotiate temporary or permanent changes to mortgage terms with their lenders.

“Just in the past month or so, if somebody has a steady job … lenders are negotiating terms,” McCosh said. “Their answer a few months ago was: ‘No, they need to stick to the agreement.’ “

The agency has been on a growth binge since the real estate market went into a tailspin. Consumer Credit has quadrupled its staff of credit counselors since 2006 to 87, and expects to nearly double that total when it opens a new counseling center in December.

Still, the pace at which such organizations have been able to negotiate relief for delinquent homeowners, both in Georgia and nationally, has generally been flat during the first half of this year, according to HOPE NOW’s numbers.

Critics say the voluntary nature of lenders’ programs has limited their effectiveness. Lenders and advocacy organizations also have been swamped with calls from desperate homeowners.

McCosh acknowledged that Consumer Credit Counseling Service’s “resources are fully engaged right now,” and that many homeowners also have a hard time reaching the right decision-makers at their bank or other lender.

But half of the people who eventually lose their homes in foreclosure “don’t call anybody,” said McCosh, whose organization helps staff a national hotline, 1-888-995-4673, as part of the HOPE NOW alliance. “People should be persistent,” he said. “The answers that people got two weeks ago might change. Things are dynamic right now.”

Another problem facing desperate homeowners, said Anders, the homeowner from Conyers, is simply figuring out where to start looking for help. Even as a former editor for community newspapers and an active participant in community groups, she said she spent a lot of time looking for help before she ran across the Atlanta-based nonprofit.

“There’s so many shysters out there that are taking advantage of people,” she said.

Esther Smith, a retired employee of the U.S. Department of Housing and Urban Development, said she likewise had trouble finding help when she realized several months ago that she couldn’t find the mortgage broker that sold her an adjustable-rate mortgage. She wanted to refinance before the interest rate reset next August from 7.49 percent to 10.49 percent, and higher later on.

“If it goes up, I’ll be up a creek,” she said of the monthly mortgage payment, which ultimately was set to jump by $724. She hadn’t expected to ever face those onerous terms because the broker had promised in writing to refinance the loan without charging extra broker or origination fees. But the loan broker disappeared and the firm closed its doors, she said.

She hasn’t been able to find another lender who will refinance her home, an attractive ranch house in the well-shaded Greenbriar neighborhood in southwest Atlanta, because it now may be worth less than the amount of her mortgage.

Smith said she paid a New York firm $1,750 to help renegotiate the mortgage.

The bank that eventually bought her loan, HSBC Mortgage Services, agreed to lower her interest rate to 5.25 percent for six months, which is saving Smith $337 a month. But Smith, who had hoped for a permanent fix, said she was not pleased with the result, especially after the bank told her she could have negotiated the same temporary changes without paying an outside firm.