NovaStar Mortgage says that helping customers to fix their financial problems rather than foreclosing on their home better serves all in the long run.

Bank lends its borrowers hand getting back on job

August 16, 2005|By Lizzie Newland | Lizzie Newland,SUN STAFF

People out of work often turn to their mortgage company to ask for a break on their loan while they look for a job and money is tight. But some customers of NovaStar Mortgage are asking for more than that.

The Kansas City, Mo., company that has offices in Maryland is offering free job placement services to borrowers who are out of work.

Unemployment is one of the biggest factors in borrowers' falling behind on their mortgage payments, according to housing experts. And industry leaders believe that more companies will develop similar programs because it is cheaper - and more beneficial - for banks to help customers fix their financial problems than to foreclose on a home.

"It's in our best interest to make sure as many people as possible make their payments," said Mike Enos, senior vice president of marketing at NovaStar.

NovaStar said it loses an average $60,000 on each foreclosed property. So instead of taking the loss - and people's homes - the lender came up with LaunchPoint, a job placement service in August 2004.

The program has six employees, including four professional career counselors and one Internet job search specialist. The team provides free career counseling, resume creation, mock interviews and other services to NovaStar customers. The effort cost NovaStar about $335,000 last year.

In its first year, the company said it has helped almost 200 people across the country get back into the work force. The company estimates the program has saved NovaStar $2.5 million worth of foreclosures. Currently, 936 customers are involved in the program, according to LaunchPoint manager Vicki Lewis-Coats.

One customer is Ernest Evans, 51, of Fort Washington in Prince George's County. Evans said he lost his job as a senior personnel security specialist in March. He started getting help from LaunchPoint in May.

Evans, who learned of the program by accident, said, "It was such a relief to learn that this was available." LaunchPoint provided him with a career counselor, resume assistance and more than 70 job leads.

"I wish a lot more companies would do this," Evans said. "People like me, when they fall prey, they need help."

Still, Evans has yet to land a job. And his mortgage payments haven't been adjusted. In the meantime, he is relying on unemployment and military retirement checks as well as his wife's income to pay the bills.

Enos said that NovaStar will work with customers to set up payment arrangements, even if they are not approaching foreclosure. However, the company waits 90 days after the borrower has found a job before restructuring debt.

"The reason we wait is to see that they are serious about the job before we extend the loan," he said.

In the past decade, some mortgage companies have looked for ways to assist borrowers who are having trouble paying for their homes, said Mike Fratantoni, senior director of single-family research and economics for the Mortgage Bankers Association in Washington. Many mortgage companies offer payment insurance or extend the length of loans so that a borrower has time to catch up on payments.

"If lenders continue to think of new ways to help a borrower stay in their home, it's a good idea because it's beneficial for the lender and the borrower," Fratantoni said.

Besides improving NovaStar's finances, Enos said that helping borrowers get back on their feet promotes good will. "People feel good about working for a company that is willing to do this, especially in the collections department."

Added Lewis-Coats: "They're not just bill collectors anymore."

Mortgage companies are looking for ways to keep business since fewer people are expected to be buying homes or refinancing their mortgages as interest rates rise, said Elinda Kiss, a finance professor at the University of Maryland.

Because home prices have escalated so much, some experts worry that buyers are taking on too much mortgage debt and may not be able to make ends meet if interest rates rise too much or they lose their jobs. And with financial institutions taking on more clients with risky credit, the problem of delinquency and foreclosure become more significant.

Janet Wagner, associate chair of marketing at the Robert H. Smith School of Business at the University of Maryland, said it's too early to know whether programs like these can succeed. But she said they might help improve a mortgage company's financial health.

"If people lose their jobs and can't make payments," Wagner said, "then the mortgage company loses money."

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