Preventing mortgage default

Andrena V. McMayo, Contributor

The single most detrimental mistake mortgagors (borrowers) can make is postponing meeting with their mortgage providers when they fall behind on their mortgage payments. Too often, persons lose their homes because they did not believe lenders would listen, let alone help them. Experience has shown that delinquent borrowers who engage their mortgage providers are most likely to have their situation resolved amicably.

It is also a misconception that mortgage providers want to foreclose on real estate. Building societies and banks are not in the business of home sales, and furthermore, foreclosure proceedings can be costly. In addition, when the general economy is suffering, mortgage providers' ability to offload foreclosed properties is impaired. So if ever there was a time when mortgagors were able to broker a deal with their providers, that time is now.

But with that said, it is worthy of special note that in Jamaica, the lender can claim on the mortgagor's other assets if the proceeds of the sale of the foreclosed property is insufficient to cover the amount owed. In a down market, where property values have fallen, the possibility does exist that property values could fall below the amount owed to the lender.

Work-out options

The Office of the Comptroller of the Currency (OCC), the United States regulator of national banks' mortgage lending activities, recently reported that "surveys showed that the majority of late-paying borrowers say they were unaware of work-out options, and that almost all of these borrowers would have talked to their servicer or lender if they had known these options were available to them". However, the surveys also revealed that delinquent borrowers ignored efforts by their mortgage providers to contact them. These non-respondents cited they were often fearful of the communication or were simply of the opinion that it would not be helpful to speak to their lender.

If we acknowledge that the OCC's findings are not perfectly relevant to Jamaica, but that the behaviour of consumers in the USA and Jamaica likely bear some similarities, then we can assume that the fears of delinquent mortgagors are also similar. Perhaps this publication will allay some of these fears by empowering borrowers with the knowledge about the available work-out options.

Two of the more popular workout options, available locally, are as follows:

1. Forbearance

Lenders will usually offer a mortgage-forbearance plan which offers temporary financial relief to help borrowers cure mortgage arrears. Different institutions treat real-estate forbearance differently. Some will suspend home-loan payments for one to three months while others temporarily reduce monthly installments. Outstanding balances are normally rolled to the end of the loan and payment terms extended. The only way to know which forbearance option is available is to contact your lender.

2. Loan modification

Another option is loan modification. This involves permanently changing the terms of the mortgage note. Usually, lenders extend payment terms; however, borrowers must meet lending eligibility criteria to obtain a home-loan modification.

While not all mortgagors will qualify for a workout option and not all work-out options will be successful, the earlier a lender is contacted, the greater the possibility that the homeowner's circumstances will be addressed through individual counselling.

Andrena V. McMayo is the treasurer at the Victoria Mutual Building Society in Kingston.