Tips For Homeowners Under Pressure

By ERIN FLYNN JAY

Delinquencies are up as Americans feel the pain of continued inflation and other stresses on the economy.

The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 3.97% at the end of the second quarter, according to the Mortgage Bankers Association’s National Delinquency Survey.

Marina Walsh, MBA’s vice president of industry analysis, said mortgage delinquencies are still low by historical standards, but a rising unemployment rate corresponds with the increase.

That is not surprising, considering Americans have been racking up credit card and other debts as inflation remains persistent, so the loss of a job is economically challenging for many households. According to the Federal Reserve Bank of New York, total household debt rose by $109 billion to reach $17.8 trillion in the second quarter.

Officials there reported that auto and credit card delinquencies remain elevated.

What can homeowners under pressure do to protect their homes?

Donna Schmidt, managing director of DLS Servicing, said the best thing a person can do to protect their home is to be deliberate about their monthly budget. First, she said they need to establish an emergency fund and then ensure their income is comparable to their expenses.

“Forty years ago, lenders limited housing debt to income to 28%,” said Schmidt. “We also had less expenses. Today we allow higher debt ratios plus most feel that cell phones, cable television, and other application subscriptions are essential, stretching budgets to breaking points.”

Schmidt believes with rising unemployment Americans are in for a bumpy ride through the end of the year.

“Twenty percent of our loss mitigation applications resulted in forbearances due to unemployment; the balances were primarily a result of excessive obligations,” said Schmidt. “We typically see an increase in loss mitigation applications by mid-September, but we are seeing it already now in mid-August.”

This and other signs that a potential recession is looming mean that homeowners need to take a serious look at their monthly budgets and begin to make cuts in discretionary spending.

“That will further the risk of recession, but households must prepare themselves for the worst,” she concluded.

With advances in technology, servicers are finding new ways to reach borrowers to keep them on track with their mortgage loans.

Toby Wells, president of Cornerstone Servicing, said his firm aims to establish positive relationships with homeowners as soon as they begin servicing their loans by offering tools and resources to help them.

“The total cost of homeownership is rising, largely due to ever-growing tax and insurance costs,” said Wells. “Timely and proactive engagement is key. For starters, when a homeowner’s expenses go up, we tell them quickly instead of waiting for the next scheduled escrow analysis.” 

Cornerstone Servicing educates homeowners on strategies to manage their expenses in both the short- and long-term. For example, Wells said they recommend shopping for insurance annually to get the best coverage at the best price and explore solutions like property tax appeals and exemption filing services.

“We raise awareness of ways to lower their monthly mortgage payment, such as a recast or terminating private mortgage insurance ahead of schedule, when eligible,” said Wells. “We also offer home equity products to qualified homeowners, which could provide emergency financial relief if they have unexpected expenses or help them pay down high-interest debt at a much lower, fixed rate.”

Leaders at Cornerstone Servicing say they use data-driven insights with timely, personalized communication to keep their delinquency rate well below industry averages.

“This allows us to use predictive analytics to identify at-risk homeowners well before a first missed payment, based on loan-level activity or regional trends such as changes in property taxes, insurance costs, and unemployment levels,” said Wells. “From there, we can proactively reach out to them with solutions and resources that are tailored to their needs.”

When a homeowner does fall behind, loss mitigation technologies can help get them into the best mortgage assistance program for their circumstances, Wells said.

Editor Kimberley Haas contributed to this report.