Nearly two-thirds of borrowers behind on their payments are unaware of the workout options available to them, according to a study by Freddie Mac, the company said today.
The mortgage giant conducted the study to find out why late-paying borrowers risk losing their homes rather than contacting their mortgage servicers. The borrowers never contact their lender in more than half of all foreclosure cases, according to Freddie Mac.
The survey, conducted by Freddie Mac and Roper Public Affairs and Media, was undertaken to help find out why, Freddie Mac said.
The Freddie Mac/Roper survey found that 75 percent of the delinquent borrowers surveyed recall being contacted by their servicers, the government-sponsored enterprise said. Mortgage servicers collect monthly housing payments on behalf of Freddie Mac or other investors.
Of the group surveyed for the study, 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, Freddie Mac said.
Other reasons for not calling included embarrassment (6 percent), fear (5 percent), or not knowing whom to call (5 percent), according to Freddie Mac.
The lack of borrower follow-up may help explain why more than six in 10 (61 percent) of late-paying borrowers said they were unaware of a variety of workout options that could help them overcome short-term financial difficulties, Freddie Mac said.
At the same time, 92 percent said they would have talked to their servicers had they known these options were available to them, according to Freddie Mac.
The Freddie Mac/Roper survey found no significant statistical difference in the responses given by white, black, Latino, male or female borrowers, and the company said this indicates an almost universal need for more borrower education about workout options and foreclosure avoidance.
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, the company said.
“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, in a statement.
“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,” Beckles said.
“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.
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.
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