Lenders are getting creative in reaching borrowers in default. You’re Invited . . . To Pay Your Mortgage.

Mortgage lenders hunting for delinquent homeowners who have dodged their phone calls and letters are employing aggressive new methods to track them down, potentially making every knock on the door or fancy envelope seem like part of the pursuit. Even wedding invitations are suspect.

The idea, they say, isn’t to twist arms. Instead, it’s to avoid foreclosures, which have cost the mortgage industry billions of dollars in the past year.

Ocwen Financial is negotiating a deal with HomeFree-USA, a nonprofit group, to go door to door in the Washington area to strike deals with elusive borrowers. Fannie Mae is offering foreclosure lawyers up to $600 to help find solutions for these homeowners. Wells Fargo is disguising its letters in different colored envelopes, including some resembling wedding invitations.

Many of these homeowners do not expect, or trust, offers of help from their lenders, say community groups that have become active in this work. Some borrowers tried reaching out before an interest rate increase pushed the monthly payments out of their reach, only to be told to call back after they fell behind.

“They feel that the lender has put them into this bind, so they are not returning phone calls,” said Marcia J. Griffin, president of HomeFree-USA, a local group that works with home buyers and homeowners.

Many borrowers have been pursued before by aggressive debt collectors who encouraged them to use their retirement accounts, borrow from family members or raid their child’s college fund to catch up on their bills, said Michael Shea, executive director of Acorn Housing, a counseling agency. “They badger you until [you] don’t want to talk to the servicer again,” he said. “By then, [you] don’t even want to answer the phone.”

Wells Fargo estimated that it had no contact with about 30 percent of delinquent homeowners who went into foreclosure in 2006. Last year, it began testing envelopes in bold or unusual colors or resembling wedding invitations.

Last month, it began experimenting with offering $250 gift cards to delinquent borrowers who had been unreachable, said Joe Ohayon, a Wells Fargo vice president.

Other lenders are focusing on building relationships with community groups. While borrowers typically respond to 3 to 5 percent of the letters sent out by lenders, they respond to about a quarter of those from such grass-roots groups, according to the Hope Now Alliance, a nonprofit organization funded by mortgage lenders.

Sometimes just using a community group’s name is enough: Chase, which services $600 billion in loans, sends letters on Acorn letterhead and pays the group to leave its door hangers at the homes of borrowers it has not reached otherwise. When Ocwen, a subprime servicer, reached out to borrowers on Hope Now letterhead in December, it had a 15 percent response rate.

Acorn is paid $50 to $70 for every person found. The organization is negotiating with other companies to expand these efforts, he said.

Industry Shills

Companies accepting money from Countrywide (CFC), Chase (JPM), Ocwen Financial (OCN), Wells Fargo (WFC) and others are little more than industry shills.

HomeFree Funding, Inc.

HomeFree Funding, Inc was launched in 1997 as a wholly owned mortgage brokerage subsidiary of HomeFree-USA. From its inception HomeFree Funding was designed to close the loop between fully prepared, default resistant homebuyers and their access to mortgage products that reflected their needs and recognized their preparation for homeownership.

Since its inception, HomeFree Funding has originated in excess of 1,500 loans in Maryland and the District of Columbia in conjunction with the HomeFree-USA counseling program. These originations have been brokered to primary partners such as Bank of America, Chevy Chase Bank, CitiMortgage and Wells Fargo.

Hope Now Alliance

Hope Now USA is a full private mortgage counseling service that acts on behalf of homeowners to achieve mortgage relief and avoid foreclosure. The Federal Government does not act or negotiate on behalf of homeowners.

Translation: Hope Now USA’s mission is to get you to keep paying your mortgage whether it is in your best interest or not.

Acorn Housing

National non-profit ACORN Housing has been providing free housing counseling to low and moderate income homebuyers since 1987. We have opened HUD-certified, Fannie Mae-approved housing counseling offices across the US, helping over 50,000 families to achieve homeownership.

Congress Ponders Change In Bankruptcy Law

While searching around for bankruptcy numbers (Bankruptcy numbers jumped 40% in 2007), I stumbled across this interesting article from January 2008: As bankruptcies surge, Congress ponders change in law.

In 2005, Congress passed a new law aimed at making it harder for people to file for bankruptcy and walk away from their debts.

With the tougher requirements, the number of bankruptcies declined in 2006 but surged by nearly 40 percent in 2007, according to statistics released Thursday. And experts predict the numbers will go higher this year.

The issue is gaining plenty of attention on Capitol Hill, where leading Democrats are proposing to roll back the landmark bankruptcy law. As the number of foreclosures rise, backers of an overhaul say it’s needed to prevent more Americans from losing their homes.

“You ought to never lose your home in a bankruptcy proceeding,” Connecticut Democratic Sen. Chris Dodd said during a presidential debate in Iowa last month.

While Dodd’s White House hopes ended after the Iowa caucuses on Thursday night, his voice still carries plenty of clout on Capitol Hill. As chairman of the Senate Banking Committee, he has ignited a feud with the financial services industry by proposing to give bankruptcy judges more leeway in how they treat home mortgages. And Dodd has lined up support from more than a dozen senators for a bill that would tighten predatory lending practices, which are blamed for driving thousands into foreclosure.

Business groups have no interest in reopening the 2005 bankruptcy bill, one of the first major achievements of Bush’s second term, which passed when Republicans controlled Congress. But Dodd calls it “one of the worst pieces of legislation ever passed.”

More than 801,000 personal bankruptcy filings were made last year, compared with more than 573,000 in 2006, according to statistics collected by the National Bankruptcy Research Center and released by the American Bankruptcy Institute (ABI) on Thursday.

Lots of questionable lending decisions by banks and credit card companies were made with the passage of the Debt Slave Act of 2005, more commonly known as the Bankruptcy Reform Act of 2005. Nothing much will happen this year, but 2009 will likely be another story.

America’s Love Affair With Credit Cards Is On The Rocks and one of the reason is consumers have finally had enough of predatory lending practices. A Republican Congress rammed through blatantly one-sided changes in 2005 in the name of “reform”. Democrats are likely to unwind those changes and perhaps then some in 2009.

Look for major revisions in both bankruptcy and credit card law as predatory lending debate takes the stage and the Debt Slave act of 2005 is rewritten.

In the meantime, lenders are getting creative about sending out invitations, some resorting to hand delivered messages by industry shills masquerading as non-profit organizations. However, changes in consumer attitudes suggest most will quickly see that such invitations are not worth accepting.

Mike “Mish” Shedlock
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