Community Groups Help Avoid Foreclosures

(Foreclosures are at an all-time high throughout most of the United States. Double-digit figures of foreclosures are sweeping through even the most successful and lucrative U.S. markets.)

During the housing boom from 2000 to 2005 many current home owners obtain "exotic" or adjustable rate mortgages in order to buy property with little down and low monthly payments. As the market corrects itself and adjustable loans are resetting, foreclosure are going to continue to increase in frequency.

Lingling Wei, writer for The Wall Street Journal, explains how community groups are providing options to help desperate homeowners avoid foreclosure, in her article, "Lenders Get Help to Prevent Foreclosures," which was published in the paper's November 2, 2006 edition.

"Consider East Side Organizing Project, a Cleveland neighborhood organization founded more than a decade ago to focus on improving local schools. J. White, among hundreds of other local residents, credits the group for preserving homeownership in the community by serving as a liaison between financially strained borrowers with their loans mortgages$."

In 2003, White took out an adjustable-rate loan to lower his monthly mortgage payments to pay off outstanding bills and two years later was on the brink of foreclosure, as they (White and his wife) saw their mortgage payment nearly double to $2,035 a month.

"We did a stupid thing by refinancing with the people we refinanced with and not recognizing the fact that we had an option to just get out of the chair and not take the loan," said White.

To avoid foreclosing the home and turn the property over to the lender, the Whites contacted the Department of Housing and Urban Development, the local United Way and then finally East Side.

"'They [East Side] are very good at working out deals with lenders,' Mr. White says of the neighborhood group. Under an agreement brokered by East Side, another lender came through for the couple, agreeing to lend them $147,000 to pay off their existing $167,000 mortgage, and the original lender agreed to waive the $20,000 difference. The Whites got to keep their home."

Community groups, such as East Side, are becoming very valuable and needed organizations amidst rising mortgage delinquencies and defaults.

"A powerful tool in their arsenal, says Mark Seifert, executive director at East Side, is the fact that 'contrary to the common myth, the lender loses, too, when someone goes to foreclosure.'"

According to a Federal Reserve study foreclosures are estimated to cost a lender anywhere between 30 percent and 60 percent of the outstanding loan balance, due to legal fees, unpaid interest and property expenses.

In fact, everyone involved with a foreclosure transaction loses, including the borrower, the surrounding community, the lender, the mortgage insurer and investor, said Mike Fratantoni, a senior economist at the Mortgage Bankers Association, of Washington, D.C.

"Foreclosure prevention has proved challenging for borrowers and lenders. Delinquent borrowers may feel too wary of creditors to reach out to them, while lenders often find borrowers hard to reach. That is where community groups and nonprofit housing counselors come into play."

Community groups like East Side are providing a valuable service that those in danger of foreclosure trust, because it is not just a faceless lender or bank. This trust is saving homes.

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