Washington -- A small, experimental homeownership-preservation effort under way in eight states is yielding powerful results that should catch the attention of mortgage lenders and local governments nationwide.
What it's demonstrating is that even homeowners who are seriously delinquent on their mortgage payments because of job layoffs, illness or divorce -- people whom lenders might ordinarily give up on -- don't have to lose their houses to foreclosure. They can instead be reached, helped to get current on their loan payments, and remain in their homes for the long term.
In the process, lenders can save thousands of dollars per house they'd otherwise lose in foreclosure costs, and local governments can avoid property tax base erosions that foreclosure sales inevitably produce.
Sounds like a win-win-win proposition. But how is it possible? Listen to the way it happened in the case of "Mary," an Oregon woman whose husband abandoned the family suddenly -- without a trace of where he'd gone -- last year. A chronic gambler, he left Mary with nearly $4,000 in unpaid debts. To pay off some of them, she sold her TV, piano and furniture.
But she couldn't handle all her bills as a single parent and began missing mortgage payments on her home. Her lender informed her that it had no alternative but to foreclose to recover its funds.
Enter the "Mortgage Foreclosure Prevention Program Collaborative," a little-publicized joint venture of three Minnesota-based foundations working through a network of local, nonprofit housing services agencies. From a participating community organization in Hillsboro, Ore., Mary received free personal, financial and employment counseling, plus a $3,569 interest-free loan that enabled her to bring her mortgage arrears current. The loan is secured by a lien against her home, and must be repaid whenever Mary sells or refinances the property.
With income from a new job she was able to land, plus a $200-a-month rent contribution from her older daughter who moved back to the house, Mary is back on her feet and still owns her home. The lender has been placated, and the house wasn't sold at a fraction of its market value to a foreclosure-investor shark.
Mary is just one of hundreds of severely distressed homeowners who have been helped by the collaborative's experimental foreclosure-prevention program. Financed with $2.4 million from the St. Paul, Minn.-based Northwest Area Foundation, a philanthropic group, the collaborative currently works through local agencies in Minnesota, Idaho, Iowa, North and South Dakota, Montana, Washington and Oregon. It hopes its highly focused loss-prevention techniques will be duplicated by the lending industry, local governments and charitable groups across the country.
During the past three years, according to Northwest's senior program officer, Cris E. Stainbrook, the experiment has demonstrated that with a combination of careful screening of homeowner participants, financial and employment counseling and -- where absolutely necessary -- modest financial "interventions" typically no higher than $4,000, "you can truly keep people out of foreclosure, and save lenders and local governments millions of dollars" at the same time.
Out of nearly 1,400 financially distressed homeowners who have received some form of help from the collaborative's local outreach agencies, 95 percent of those receiving cash assistance and counseling were able to prevent foreclosure. Homeowners who received only counseling -- but no money -- were moderately successful in avoiding foreclosure: About 41 percent of them were able to either bring their loan current on their own, convince their lender to forbear or restructure the loan, or used other preventive methods with the guidance of housing counselors.
Since a typical foreclosure costs the lender anywhere from $3,000 to $20,000 or more, the collaborative's homeowner rescues have saved mortgage companies and banks millions of dollars in the past two years, by Stainbrook's reckoning.
The collaborative's local agencies screen borrowers intensively to make sure that they're willing to undertake the tough reforms -- personal, work-related and financial -- necessary to get them back on track. If not, they don't qualify for help. Tough love, in other words, is a crucial ingredient in the collaborative's remarkably successful, low-budget recipe for keeping people in their own houses.
Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.