EDITOR’S NOTE: The last names of some people in this story were withheld in order to protect their privacy.
When the manufacturing plant Jason worked at closed in 2004, he fell behind in his mortgage payments and was threatened with foreclosure.
Jamie fell into the traps laid by predatory credit lenders (see related story on page B7) and disreputable mortgage companies.
Bill’s taxes and mortgage payments increased in 2004, but his income remained flat and he wasn’t able to keep up with his mortgage payments.
In each of these cases, Chemung County Catholic Charities’ Mortgage Foreclosure Prevention Services was able to help these individuals work with their lenders and prevent foreclosure, according to Jane Galvin, program coordinator. Contrary to popular belief, Galvin said, mortgage foreclosure is not a problem faced only by those with low incomes.
“It hits all ranges of income and status,” she said.
Many of the people she’s helped have been middle class and had been used to living comfortably and even had donated regularly to help those less fortunate, she said. Rising gas prices, utility costs and taxes are just a few of the reasons some middle-class people are suddenly finding themselves unable to make their mortgage payments, she noted.
“A lot of it is job loss, factories moving out of the area or someone going on disability, and then the income is not there,” Galvin said.
Adjustable-rate mortgages also recently have received much blame for the increasing number of foreclosures seen throughout the country.
“An adjustable-rate mortgage is just that. Your interest rate does not stay fixed for the duration of the mortgage,” explained Tracy Martinez, mortgage manager at Family First of NY Federal Credit Union.
With such mortgages, a borrower’s interest rate usually remains fixed for a set period of time at the beginning of the mortgage, and after that the interest rate can change periodically based on the mortgage’s terms and the financial indexes it is tied to, said Martinez, a parishioner of St. Rita Parish in Webster. Interest rates for some mortgages may stay fixed for one year and then change every few years, she said, or they may change as often as every six months after the initial fixed-rate period.
This type of mortgage certainly carries the potential to cause trouble for some borrowers, she said. A person who takes out an adjustable-rate mortgage on a $150,000 house, for example, might first pay a fixed interest rate of 6.375 percent, which means the monthly mortgage payment would be $936. If the rate changed to 8.375 percent after two years, the monthly payment would then be $1,131, Martinez said.
“You’ve got your budget designed one way, and then all the sudden your mortgage payment goes up $100, $150 or $200 a month,” Galvin said. “They can’t afford it, and they don’t know what to do.”
Adjustable-rate mortgages started becoming popular around 2000, right after interest rates reached an all-time high but then soon began falling rapidly, noted Ann Hynes, president and chief executive officer of St. Pius X Federal Credit Union in Chili.
As the rates fell, people were eager to refinance their mortgages and opted for an adjustable rate, Hynes said, hoping they could end up with a lower interest rate than their current one.
These mortgages aren’t necessarily bad loans, she added. Her credit union, for example, offers mortgages that have fixed-rate periods of one, three or five years and then only adjust every one, three or five years, respectively, Hynes said.
Many adjustable-rate mortgages include caps, which limit how much the mortgages’ interest rates can change each time they adjust, Hynes and Martinez noted.
An adjustable-rate mortgage is something to consider carefully before signing on the dotted line, Martinez added. Borrowers should first ask when and how often their interest rates will change and how much they can adjust each time. Then they should calculate the amount of their monthly payments in the worst-case scenarios and determine whether they’ll be able to afford those payments.
So what can a borrower do if he or she already is locked into a mortgage and is having trouble making the payments? Martinez and Galvin agree that honesty is the best policy in these cases.
If borrowers explain their situations, some lenders may be willing to work with them and negotiate new payment plans, Martinez said. Many borrowers are able to refinance their mortgages, she added, which can alleviate some financial distress.
When borrowers don’t know how to refinance or talk to their lenders, they often turn to Catholic Charities’ Mortgage Foreclosure Prevention Services, Galvin said.
Galvin said she has counseled more than 100 families over the phone, noting that simply talking about their situations sometimes helps people understand them more clearly and devise remedies. She also has met face-to-face with more than 120 other families in need of assistance.
Galvin occasionally doles out small grants to help families prevent foreclosure, but she said more often she helps the families review their finances and calls their lenders to negotiate payment plans that work for both the lenders and the families. Lenders often respond more favorable to such requests when there’s a mediator interceding on the family’s behalf, she noted.
“We’re kind of their voice. It helps the lender see that they’re being proactive,” Galvin said. “It kind of changes the whole flavor of it. So many times the lenders are more willing to work with the family because they know there’s an extra support system there.”