Delaware lawmakers have proposed a package of bills that would empower people in danger of losing their homes with counseling on ways to hang on to their properties, as well as more time to find a solution. (see related story for details)
But the measures don’t provide a remedy for lack of income, the obstacle that keeps many homeowners in default from negotiating a better deal on their mortgages, counselors at nonprofit housing agencies say. And there is no mechanism in place to ensure that beleaguered property owners will differentiate an official offer of assistance from the flurry of paperwork from banks and other creditors that lands in their mailboxes.
“We are seeing a lot more people who need help,” says Bernice Edwards, executive director of First State Community Action Agency. “Many of them have been out of work for a year or more and have little or no money coming in.”
Under the proposed legislation, an automatic mediation program would be set up for homeowners as soon as a notice of foreclosure is filed. The foreclosure process would be put on hold while the mediation is in process.
Still, it is often difficult to rally homeowners to action, says Ponciano Richard, housing manager at First State. Many are depressed by the pressure of their debts and remain in denial for months. Some say they have contemplated suicide.
“They don’t even open the letters from the bank,” she says. “They feel hopeless and isolated, embarrassed by the stigma of not being able to pay their mortgage.”
Headquartered in Georgetown, First State also has offices in Dover and New Castle. It is one of half a dozen nonprofit agencies who administer the Delaware Emergency Mortgage Assistance Program (DEMAP), established by the Delaware State Housing Authority to provide counseling and low-interest loans of up to $15,000 to people at risk of losing their homes. Payments are deferred until the property is refinanced or sold.
Last year, more than 600 homeowners turned to First State for help. About 400 consumers are still working out a plan with the banks. In all, 132 applicants completed the cumbersome process of mitigating their loans, a procedure in which the lender agrees to forgive part of the loan, reduce the interest or give the borrower more time to pay.
“That’s less than 25 percent,” Richard notes.
The lawmakers estimate that foreclosures in 2011 will surpass last year’s mark of 6,400 homes. Since 2007, more than 27,000 residential properties in Delaware have been foreclosed on by lenders.
To protect consumers from schemers who promise to negotiate loans but provide little or no help, the bill calls for the registration and bonding of mortgage modification companies. Legislation also would create an office in the Attorney General’s Fraud and Consumer Protection Division to manage foreclosure-related issues and to work with lenders in difficult cases.
“Unfortunately, there are scammers out there and we are happy to see safeguards that would protect homeowners,” says Joe L. Myer, executive director of the National Council on Agricultural Life and Labor. “At every workshop, we see people who have paid $3,000 or $4,000 for a modification and it never happens.”
That’s money that could have been used to make mortgage payments, Myer notes. NCALL and other HUD-approved agencies provide modification services without charge. Based in Dover, NCALL conducts four foreclosure prevention workshops each month, two in Kent County and two in Sussex County.
In 2010, 753 homeowners asked for help in at the agency’s offices in Newark, Dover and Georgetown. Of those, 453 received counseling and 106 homes were saved. More than 300 others are still trying to work out agreements with lenders.
With no sustained economic rally in sight, there is more than enough pain to go around. In February, the foreclosure rate spiked 63 percent in the First State, compared to a 27-percent decrease nationwide, according to RealtyTrac, a California-based company that monitors the home market.
“Delaware is going in the opposite direction of the rest of the country,” says Daren Blomquist, RealtyTrac spokesman.
He notes that because Delaware is a small state, statistics are easily skewed. It will take months before a clearer picture of foreclosure trends emerges.
Still, in February, Delaware buyers paid prices for foreclosed homes that are 38 percent less than properties that are not in distress, according to RealtyTrac statistics. Only nine states have higher discount rates, including Pennsylvania, where foreclosed homes sold for 40 percent less, and Maryland, where the sale price was 42 percent less.
The foreclosure rate is highest in Sussex County, where a building boom in the early 2000s left a glut in inventory when the housing bubble burst in 2006.
In Bethel, in western Sussex County, one in 48 homes received a foreclosure notice in 2010. In Seaford, a letter from the bank arrived at one in 61 homes. In Georgetown, the county seat, the rate was one in 93 residential properties.
As of mid-March, there were 5,862 homes in some phase of foreclosure in the county, which has a population of 197,145, according to RealtyTrac. In Kent County, population 162,310, 2,168 homes are in foreclosure. In New Castle County, where 583,479 people live, the tally is 5,135 homes.
The new law would require an affidavit from the lenders to insure that loss mitigation was considered before a judgment can be entered in favor of the bank.
“Providing guidance to homeowners is essential in leveling the playing field between banks and homeowners,” says Rep. Helene M. Keeley, D-Wilmington South.
Under DEMAP rules for emergency loans, in New Castle County the household’s gross income cannot exceed $89, 470. In Kent and Sussex counties, the threshold is $81,420. Applicants must be at least three months behind on the mortgage. Homeowners also must prove they had a history of paying on time for five years before they suffered a financial hardship beyond their control.
That could be illness, an accident, a death in the family or the breakup of a relationship. Most often, homeowners fall behind on their bills because they have lost a job, Richard says.
“We see people who had household incomes of $100,000 who now have $50,000 or $30,000 coming in,” she says. “We see people who had $15,000 or $10,000 and are now down to almost no income. Even the most determined homeowner cannot modify a mortgage if they do not have enough money coming in to make the payments.”
It typically takes three to nine months to negotiate a plan. But the process can drag on much longer.
“We have been working with some people for a year and a half,” Richard says.
In downtown Wilmington, Housing Opportunities of Northern Delaware spells out the barriers to mortgage mitigation in literature provided to consumers. The biggest hurdle is the ability to resume making payments.
Says HOND’s guidelines to applicants: “A person who has mortgaged their home to the limit, whose spouse dies without life insurance, who has no employable skills, and has no plans of entering into an employment training program probably has little prospect of resuming their mortgage payments within 12 months and would not be found eligible.”
Delaware is not among the 18 states receiving federal assistance through the Hardest Fit Fund, which provides cash payments of up to $3,000 a month for homeowners in default in states in which the unemployment rate exceeds 12 percent and/or the value of real estate has dropped more than 20 percent. The jobless rate in the First State is 8.5 percent.
Blomquist notes that not all homeowners are focused on avoiding foreclosure, especially if they have borrowed heavily against their properties.