Freddie Mac has found that homeowners are becoming increasingly aware that there may be help out there should they run into problems paying their mortgage loans but there is still a long way to go in spreading the word.

The mortgage corporation has just released a survey done in cooperation with Roper Public Affairs and Media, a leading international market research firm that shows 57 percent of borrowers who are behind in their payments are unaware that their lenders may be able to offer them workout options. This, however, is an improvement from 2005 when the first such survey revealed that 61 percent of delinquent borrowers didn't know that such help was available.

Roper contacted 2411 homeowners, 1,407 of whom said they had never been more than one month late on a mortgage payment and 1,004 who were (currently we assume) more than one month late.

According to Ingrid Beckles, vice president of servicing and asset management for Freddie Mac, the study was motivated by the fact that "lenders are unable to contact borrowers in more than half of the foreclosures we see at Freddie Mac. That's why it is imperative to closely track borrower awareness of workout options so the industry and the government can evaluate and enhance their efforts to get more borrowers talking to their servicers about avoiding foreclosure."

The results, she said, "show[s] efforts to get borrowers to call counselors are starting to work but that too many at-risk borrowers are still unaware their servicers routinely provide alternatives that can help them stay in their homes. This fact underscores the importance of convincing borrowers to pick up the phone, call their servicer, and find out whether they can avoid foreclosure
The survey found an increase in the percentages of delinquent borrowers who recall their lenders reaching out to them (86 percent) and who in turn reached out to their lender (75 percent) to discuss workout options and that the percentage of delinquent borrowers aware there are housing counselors they can talk to about their mortgage has increased from 36 percent in 2005 to 44 percent today. A majority (59 percent) of delinquent borrowers said their contact with their servicers was helpful although one in four said the experience was "intimidating" or "confusing".

While 57 percent of delinquent borrowers were unaware in the broadest sense that options existed for them, the new survey found that borrowers were aware of specific options when they were named by interviewers. When prompted 63 percent of delinquent borrowers said they knew about repayment plans, 68 percent knew of the possibility of converting an adjustable rate into a fixed rate mortgage, and 78 percent knew that they could pay off their mortgage in a single lump sum. In addition, 54 percent knew that delinquent amounts could be added to the loan balance and 52 percent that the length of the mortgage term could be extended to lower monthly payments. However, only 43 percent were aware of a temporary suspension of payments (forbearance) and 41 percent knew of the possibility of a deed-in-lieu of foreclosure.

One in four delinquent borrowers chose not to accept their lender's invitation to discuss workout options, but the percentage that said they believed there was no reason to call or nothing the servicer could do to help fell from 48 percent in 2005 to just 33 percent in 2007. On the other hand, the percentage that chose not to call because they said they didn't have enough money to make a payment rose from 7 percent to 16 percent and the percentage who denied they were having trouble making their payment doubled from six to 12 percent.

Among those delinquent borrowers who have contacted their mortgage lenders, 59 percent found those lenders to be helpful and 32 percent thought the experience reassuring. However, 42 percent found the calls frustrating, 35 percent were embarrassed and about one in four found it to be a scary, intimidating, confusing, and/or pointless experience.

The survey found some differences between delinquent borrowers and those in good standing. The former tended to be younger than the latter (62 percent under the age of 50 compared to 40 percent) and more likely to live in homes with an annual income under $75,000 (64 percent vs. 48 percent; in addition, 27 percent of homeowners in good standing had incomes exceeding $100,000 compared to 11 percent of those who were delinquent.)

Delinquent borrowers worry often about having enough money, have many financial obligations each month, do not feel in control of their finances, are not comfortable talking to their financial institutions about their finances and tend to feel that those institutions do not treat them fairly. Borrowers in good standing have the opposite attitudes toward their finances and financial institutions. Delinquent borrowers are also about four times as likely as homeowners in good standing to pay key monthly bills late.

The survey was conducted after the HOPE hotline was established but before the rate freeze was announced by President Bush in December. Still, even before the recent flurry of media stories about 888-995-HOPE, word was out there. According to the survey, nearly one in four delinquent borrowers (23 percent) report seeing ads for the hotline and 9 percent who were aware of it had actually made the call. The sponsor, Homeownership Preservation Foundation., says the toll-free number now receives between 1500 and 3000 calls per day, up from 250 per day one year ago. More than 200,000 homeowners have called the hotline since June 25 of last year.

The study concludes that mortgage servicers can do several things to improve communication and possibly debt resolution with their borrowers:

  • Since homeowners say they open correspondence from their financial institutions (as opposed to screening or not returning calls), mailings should detail the options available and encourage borrowers to pursue them.
  • Encourage borrowers to fully understand those options and the range of resources available;
  • Emphasize options that would allow homeowners to keep their homes and avoid mortgage foreclosure scams;
  • Use the internet as an education tool to promote responsible workout options for delinquent borrowers. (The survey also found that troubled homeowners were increasingly likely to look for helpful information on the web.)