QUESTION: How many mortgates have you had to foreclose on?

ANSWER: Mortgage foreclosures are in the news these days. They’re making headlines in newspapers and magazines, radio and TV, and becoming a hot topic for political debate. Average Americans are learning more than they ever wanted to know about the “sub-prime” mortgage market and the potential impact of the mortgage upheaval on the U.S. economy.

Meanwhile, Congress has proposed bills to allow the Federal Housing Administration to back refinanced loans to tens of thousands of borrowers who are delinquent on their mortgages. According to an Associated Press report, an estimated 2 to 2.5 million adjustable rate mortgages are scheduled to “reset” this year and next, raising their interest rates far above the initial “teaser” rates that attracted home buyers over the past few years, and raising monthly payments out of the reach of homeowners.

For the past 15 years here in Loudon County, Habitat for Humanity has built simple, decent, affordable homes in partnership with 61 low-income families. Once a home is completed, the family signs a no-interest mortgage to reimburse Habitat for the cost of land, infrastructure, building materials and subcontractors’ labor.

However, in 15 years Loudon County Habitat has never had to foreclose on a mortgage. 

The families who buy these homes are working in low-income jobs. Many have had misfortune in their lives--either self-imposed or through circumstances beyond their control. Some are lacking in formal education; some have credit problems; some have had health or lifestyle issues that now limit their earning ability or have created excessive family debt. All are trying hard to overcome adverse circumstances and are willing to do whatever is needed to improve their lives.

Whatever the cause of their current situation, they’re the target market for sub-prime interest mortgages and predatory lenders.

So, what makes the Habitat program work when record numbers of homeowners across the U.S. are now facing a real possibility of losing their homes?

In this case, the old adage applies: an ounce of prevention is worth a pound of cure. 

The initial screening of applicants ensures that only those families are selected who are able to afford the monthly house payments of approximately $300.

Habitat selects families who are motivated to “partner” with Habitat to earn their homes. A single-adult family must work 350 hours of  “sweat equity;” a two-adult family, 500 hours. This hands-on physical labor requires a serious level of dedication over a period of time that averages about 18 months.

Each family is required to participate in a series of workshops that help educate them about what it means to be a homeowner, how to manage family finances, how to make basic home repairs and take care of a yard.  In these classes, they learn to make informed decisions about the use of credit and the importance of a credit rating, as well as setting priorities for family spending.

Each partner family is assigned a support family—a family from the local community who makes a commitment to mentor, coach, and befriend the partner family as they work toward homeownership, and then to remain in close contact with them for at least one year after they move into their Habitat home. These support families can become a valuable resource and sounding board if the Habitat partner family runs into difficulty.

But despite all this education, experience, and support sometimes a Habitat homeowner does fall behind in their mortgage payments.

At that point, our mortgage servicing committee steps in. These volunteers have experience in mortgage banking, mortgage law, and their role is to manage the Loudon County Habitat mortgage accounts, which we hold ourselves. Each month they receive the payments and make note of those who are delinquent. They send out late notices, adding a late fee to the basic payment.

If payment is not received after an appropriate time, the Habitat family receives additional notices or phone calls. Committee members will set up a meeting with the Habitat family to discuss the reason for the slow payments, to review the importance of the credit report, and to work out a mutually agreeable plan to bring payments up to date.

Most often, the payment is late because of a minor issue that is soon resolved. Occasionally, the delinquency is because of loss of a job, a family illness, or other cause that may take longer to work through.

On very rare occasions, the Habitat Board of Directors must make a decision to begin foreclosure action by sending a legal notice to the delinquent homeowner. This decision comes after a very detailed—and very emotional—discussion and much prayer, as the Board seeks to balance its moral obligation as a Christian ministry with its mandate of good stewardship of the money and labor donated by our many supporters and benefactors.

To date, all issues concerning late mortgage payments have eventually been worked out and foreclosure has been avoided.

It is inevitable that one day there will be a foreclosure. When that day comes, it will be a sad day for Loudon County Habitat as we grieve along with the homeowner.

But it will come with the heartfelt belief that we have done everything we can do to help the homeowner resolve the situation, and that the most difficult decision we have ever had to make will ultimately be the one that enables our housing ministry to continue to help other families in need of adequate shelter.

Posted November 13, 2007