Sandra Braunstein, Federal Reserve Board of Governors: Hello, I'm Sandra Braunstein, director of the Division of Consumer and Community Affairs at the Federal Reserve Board of Governors. In today's financial market, consumers have a wide array of choices among financial service products and providers. This is particularly true in the mortgage market. While this increased choice and access to credit provides opportunities, it also requires that the consumer assume a great deal of responsibility in shopping for their financial services and understanding their obligations. I applaud the proactive steps of organizations such as those featured here that offer on-the-ground assistance to help borrowers through their mortgage crises and work towards preventing foreclosure for the benefit of their families and their communities.
Silhouetted speaker: It started out being only 30 days.
Margaret Ann Staton, homeowner: My mortgage was five months late.
Silhouetted speaker: As I started to not have funds coming in, it got to be 30, 60, 90, and so forth.
Michael Brown: I don't think there's a mortgage company out there that [will work with you] once you are 90 days late to them. Some might, but I don't think so.
Frank Alexander, Emory University School of Law: When a foreclosure occurs, everyone loses.
Silhouetted speaker: It affected my marriage, but we were able to get through it.
Ken Wade, NeighborWorks America: Foreclosures cost the community anywhere from $30,000 to $60,000 per foreclosure.
Silhouetted speaker: Number one, it's embarrassing. It's an embarrassing situation.
Alexander: The homeowner loses first and foremost because suddenly they've lost their American dream.
Silhouetted speaker: With me, I spent feel like I lost my entire life savings, because I put everything into the house in attempting to try and keep it from being foreclosed.
Susan Hunt, Consumer Credit Counseling Service: One of the common misconceptions that consumers have is that lenders are waiting to pounce and foreclose upon houses.
Alexander: The house is now sitting vacant for a period of time, whether it's 30 days, 60 days, or longer.
Hunt: Lenders frankly lose $30,000 to $40,000 for every foreclosure that goes through, and that doesn't count the loss in the communities that those homes were built in.
Alexander: Home values in the neighborhood decline. The children are relocated, dislocated, changing schools.
Silhouetted speaker: They kind of rebelled because this is the house they basically grew up in, and you're moving them away from their neighborhood, so it's very hard on the entire family.
Wade: While there are some specific dollar impacts, the impact is much broader on the community overall.
Silhouetted speaker: It was very hard. It's very hard, and you have to be really strong to go through it.
Brown: One second you have basically everything you want, and then it's gone.
Silhouetted speaker: I found myself feeling like I was just going to completely lose it.
Alexander: The homeowner loses first, but everyone suffers.
Hunt: About 50 percent of the people that we talk to are behind on their mortgages for what we call the traditional reasons. They've lost income because of a job cutback or lost some overtime.
Staton: I have been unemployed since July of 2005. My job went to Monroe, La., and to Powder's Port, Pa.
Hunt: Or they've had a change in their family situation.
Staton: My sister was in a terrible car accident, so she was left literally almost paralyzed, and I chose not to relocate so that I could be close by to help give her 24-hour care.
Hunt: Whether that's a death in the family or a divorce.
Brown: This divorce got very nasty, and that was what led to me losing my job.
Silhouetted speaker: I bought my house in 2000, in 2002 it became necessary for me to go on long-term disability.
Brown: Your life depends on your income and you making your payments and paying all your bills, and once that's taken from you, the job market out here's pretty hard.
Employee at phone: But you split the $1,300?
Hunt: About 50 percent of the people who call us now are falling behind because they are in an escalating interest rate mortgage, and when they originally applied for their mortgage, they could afford the $600 or the $700 or the $800 a month, but they're just reaching the point in their mortgages where the interest rates are going up, and we've had consumers call us with monthly increases of as much as $500–$600 a month. And that's an increasing number of people who are calling us for help.
Silhouetted speaker: We thought that it was going to be adjustable after five years. We misunderstood, and it started being adjustable like every six months. The payments would change.
Wade: What's happened today is that the mortgage finance system is much more complex that it's ever been before.
Alexander: Very few buyers or borrowers understand the terms of real estate finance, and almost none of them understand the documents they're signing at closing, whether this is the purchase of a home or a refinance of a home.
Wade: Many consumers go into that transaction without adequate preparation, so one of the things we have done for a long time is to help with prepurchase counseling for consumers who are pursuing a home purchase or refinance.
Seminar speaker: And when a counselor doesn't know how to tap into the lending institution and really figure out what they're doing, how they're doing it, what their products and services are, then I still think we're doing our customers a disservice.
Alexander: My advice to all homeowners, or parties thinking about buying their first home, is three steps. First, make sure you understand the loan you're getting into, that you can understand the terms, the rates, the payments you're going to be making month in and month out, year in and year out. Make sure you understand what it costs to own a home, the utilities and taxes and insurance.
Wade: Every situation is somewhat different, but I think the general rule of thumb is anywhere from 30 to 36 percent of income should go toward housing costs. Now, a lot of times, when folks got to take out a mortgage, they obviously are qualified at the highest amount that they can qualify for. Now, that's just a strict formula that's used to just take into account based on your income the maximum that you would likely be loaned if you were to buy a home. That doesn't take into account you own personal circumstances, and every consumer has to do that for themselves.
Alexander: The second most important step is that if you see that you're ever going to be tight on making a payment, you contact the lender right away.
Staton: I talked to my lender frequently, as soon as I noticed that I was getting into trouble.
Alexander: And work with the lender to see if they can't either refinance into more favorable terms or work with you in extending time for payments.
Hunt: About 50 percent of the people who lose their home on the courthouse steps never have called their loan servicer.
Brown: Try to talk to your mortgage company before the 90 days. With a lot of them, their policy is after 90 days, they will not take partial payments of your loan. If you can't set up a meeting with them, go talk with them in person.
Hunt: One of the main reasons we encourage homeowners to work with their lenders is because that's the best possible way for consumers to be assured that if it's possible, they can preserve any equity that their have in their home and also to walk away from it in a dignified, orderly manner without facing foreclosure or possible eviction.
Alexander: The third step is, once you know that you're going to be missing payments or you're not able to work with the lender, you should certainly be seeking help from nonprofit agencies.
Mike Beatty, Georgia Department of Community Affairs: We do prepurchase counseling, we do postpurchase counseling, we do in-house counseling when there's been a type of financial distress, and then we also provide tons of free material.
Seminar speaker: Go out to other banks and say, "Hey, NeighborWorks has given us X amount of dollars."
Wade: Clearly, we want to do a better job of making sure the consumers know that there's a place where they can reach out to to find a trusted adviser so they can help or prevent a foreclosure from occurring.
Employee at phone: That's how much you owe total, $602.84?
Hunt: And I think the most important thing that we do is to enable homeowners who are in danger of losing their homes to make that first call to their loan servicer. We give them the groundwork in terms of helping them build a budget. We give them the education that they need in terms of what litigations options are available to them, and we will often help them make that first phone call to their loan servicer.
Wade: We obviously have been doing this in a number of other markets, and Georgia's been a key market for us, where we've been working with the Fed and others to help develop a local response to the foreclosure issue.
Beatty: We actually sit down with those families and say, "Now look, here's how we can work through this, and if it takes us three months, six months, a year to help you, we're going to make sure that you've got the information you need to weather that storm and help you make proper decisions."
Alexander: You should be examining your options. Is it possible to refinance in a better situation and lower your monthly payments? Perhaps it is time to sell, before you lose your equity. Begin to anticipate the options you have. Do not wait until the last moment.
Hunt: Timing's really important when you're dealing with a mortgage delinquency, especially in a state like Georgia, where there's a really short foreclosure timeline.
Alexander: Georgia leads the country in two respects, unfortunately, today. One is that it has the ability to conduct foreclosures faster than any other state in the country, and we also have the highest foreclosure rates in neighborhoods and in certain counties of any place in the United States.
Hunt: It's really easy to get so far behind very quickly that you might indeed lose your home on the courthouse steps, so time is of the essence. We encourage people to call us before they even miss that first payment so that they can get some good advice and work really hard at prioritizing their budgets, so that they don't fall far behind on their mortgages.
Alexander: The foreclosure process begins here in Georgia with the letter from the lender to the homeowner that's saying you're in default. If the default is not cured, then the acceleration letter and notice of foreclosure are sent out.
[People on courthouse steps speaking]
Alexander: Foreclosures occur on the first Tuesday of the month, between the hours of 10 in the morning and 4 o'clock in the afternoon on the courthouse steps.
[People on courthouse steps speaking]
Alexander: The property is sold to the highest bidder for cash that day.
[People on courthouse steps speaking]
Alexander: And at the completion of that sale on Tuesday, the homeowner no longer owns the home and can be evicted the next day. In the majority of foreclosures, it is the lender who buys that home at their own foreclosure. Roughly 80 percent of foreclosures are purchased by the lenders themselves. The lender then owns the property and puts it in a unit or division of that lending institution, which seeks to resell it, advertise it, and sell it through brokers or themselves in the coming months. So there's usually a lag time between the day of foreclosure and it being reoccupied by a brand-new owner. But if you're foreclosed upon on Tuesday, the first Tuesday of the month, you should anticipate being evicted within the next few days.
Hunt: One of the questions the consumers have when they fall behind on their mortgage is, "Who do I call?"
Employee on phone: What is the reason that you fell behind on the mortgage payments?
Hunt: We're very lucky here in the state of Georgia that we have access and our homeowners have access to a national helpline that they can call as soon as they're concerned about falling behind on their mortgage. That number is (888) 995-HOPE. That line is available 24 hours a day, seven days a week. All a consumer has to do is pick up the phone and call us, and they'll be able to talk with a housing counselor who can help them with their home dilemma.
Staton: I contacted the HOPE hotline and they were able to direct me to the DeKalb Metro Housing Council, and they helped me also. Once I got the job, and that held off the foreclosure because I got the job on February 5, and the house was scheduled to sell for foreclosure on February 6.
Brown: They were absolutely my last resort, basically, or I would have lost my home. When David started trying to contact the mortgage company himself, he couldn't get any satisfaction out of them, either. Like I said, it took a long process, but he finally ended up saving my home for me.
Staton: I would give the advice to please contact your mortgage company. Find out what it is that they can do for you. Call the HOPE hotline for assistance, and know that there are resources and that people are there and available to assist you if you just ask.
Brown: It was like taking the weight of the world off your shoulders, knowing that you're going to save your home. You don't have this thought that you're going to come home and a foreclosure notice is going to be on your door. It's a relief.
Hunt: We see a lot in the headlines today about how people are falling behind on their mortgages and delinquency rates are really high and how in the state of Georgia, foreclosures are really high. I don't believe that should discourage first-time homebuyers from buying a house, but I think what it should do is it should wave a flag of caution, and that what consumers need to do when they're thinking about making that purchase is take advantage of pre-purchase housing education and really educate themselves to what's available in the marketplace and also be sure to look very closely and conservatively at their budget to make sure that they can afford the home, not only today, but two, three, and five years down the road.
Alexander: Be very cautious and skeptical about the ads in the paper and the commercials on TV that promise incredibly low monthly payments. Any lender could give you a mortgage that has only a $50-a-month payment, but they're not telling you that in six months you'll be paying $2,000 a month. Do not take offers off the television or off the media without getting an independent assessment of what those mortgage terms really are. A significant portion of our difficulty today is the complex mortgages, which people have been sold, and they bought, and now they're having to pay the price for them.
Dennis Lockhart, Federal Reserve Bank of Altanta: Hello, I'm Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta. I am pleased that the Atlanta Fed is taking a leadership role in addressing this important issue affecting thousands of homeowners throughout the state and region. We hope this video not only serves as a resource to educate bankers, community groups, and other interested parties on the foreclosure process but also encourages further dialogue on intervention strategies to reduce the number of consumers facing foreclosure.