Facing down foreclosure: As unemployment spreads through region, more are struggling to keep their homes
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Brian Gauger called. He's draining his kids' college funds to stay in his house.
Robyn Benjamin called. She signed the final paperwork purchasing her townhouse a week after Sept. 11, and then the bottom dropped out.
All three lost their jobs at Boeing — and they're all contributing to a staggering increase in requests for help by frantic homeowners frightened by the specter of having a foreclosure notice stapled to their front door.
Washington state has suffered seven consecutive quarters of increases in home-foreclosure rates, compared with three quarters nationwide, according to the Mortgage Bankers Association of America.
At the end of 2001, the percentage of homes being foreclosed in this state was up 40 percent over the previous year — and reached its highest level in 13 years.
Kristine Beaton takes those frantic calls from homeowners at the Housing Counseling Program of the nonprofit Fremont Public Association, which assists people living from King County north to the border with Canada. Her agency saw a fourfold increase in calls for help in the last four months of 2001, compared with the same period a year earlier.
"By November, we were going crazy, because there were people being laid off in droves," Beaton says.
The root of their problems had changed dramatically. In late 2000, the cause of mortgage problems was fairly evenly split between job loss and money-management problems or family breakup.
Now, 53 percent — more than twice the level of the same period a year earlier — were reporting their problems stemmed from either being out of work or losing hours.
Since Sept. 11, Boeing has announced more than 12,700 layoffs locally. Since the beginning of October, local firms have pink-slipped almost 18,000 more.
For homeowners, the worst is yet to come, Beaton predicts, as laid-off workers burn through their savings.
"With Boeing, we won't see (the full effect) until six or eight months later," she estimates.
"That's the scariest part."
It's particularly scary, Beaton says, because a foreclosure is worse than bankruptcy; it leaves a 10-year black mark on a homeowner's credit.
Area foreclosures shoot up
Washington state and the Puget Sound area have been fortunate in recent years, trailing many other areas of the nation in foreclosure rates.
At the end of last year, for example, 0.88 percent of all mortgages in this state were in foreclosure, compared with the national average of 1.04. In the Puget Sound area, the figure was even lower, slightly more than one-third of 1 percent.
But in both cases, the gap appears to be closing — and raising concerns about the widening impact of the region's rising jobless rate.
The percentage of homeowners forced out by foreclosure has grown 12 percent nationally in the past two years — and 80 percent in the Seattle-Tacoma area.
The rate of foreclosures is rising despite a strong buffer, particularly in the central Puget Sound area, where the continued strength of home sales allows the majority of those in trouble to sell before they lose their houses.
"If you bought a house under $300,000 within the last 18 months or more, you probably have enough equity to get yourself out of trouble by selling it," says Denny Bullock, Prudential MacPherson's vice president of sales.
Of course, someone who sells after missing one or more mortgage payments finds themselves not only without a home, but also saddled with blemished credit.
Doug Duncan, chief economist for the Mortgage Bankers Association, says Washington's foreclosure numbers are not yet a serious problem for the industry.
But, he acknowledges, "for the individuals involved, it is a serious problem."
Seeking solutions
Kathrine Dator knows her problems are serious. Since leaving Boeing, where she worked in production, the best job she has been able to find is a bakery's 3 a.m. shift. It pays less than half of what she formerly earned.
She began missing house payments just before Christmas. Though she says her four school-age kids didn't ask for presents because they knew times were desperate, she would have felt guilty about giving them nothing. And so she spent modestly, diverting money earmarked to pay the mortgage on her south Seattle house.
Now she's visibly stressed at the very real possibility her kids will lose the only home they've ever known. And then?
"If I lose it, I'll never get a reasonable mortgage payment again," she frets.
The first step: Dator and Beaton fill out what's called "loss mitigation paperwork": a thick packet of information Dator's lender wants to see before deciding whether to work with her or foreclose.
In her paperwork, Dator explains why she has missed payments and how she plans to make them up. That means meticulously documenting her income and expenditures, and squeezing every penny.
Beaton says there's no one-size-fits-all solution. "People come in here hoping something incredible will happen to solve the problem," but there's no quick fix.
Rather, the agency first stresses education, because "people pretty much don't understand their rights or the foreclosure process," which in this state takes 190 days from the first missed payment to forfeiture of the home.
The agency assesses each client's ability to bounce back. That involves looking at the loan, the lender, the person's assets and the services available to put them on the road to recovery.
Sometimes it means hooking them up with employment or child-care resources, or even sources that can help with utilities.
But sometimes those solutions are futile. Then, "our goal is to tell them they're not going to make it," Beaton says. "That's not fun."
Some delay seeking help because they're in denial about how dire their situation is. Others fear that letting their lender know of their plight will make things worse.
But trying to hide from the lender — out of fear, embarrassment or whatever — is the worst thing to do, stresses A. Linda Taylor, housing coordinator for the Urban League of Metropolitan Seattle, King County's only other nonprofit mortgage-counseling service.
"A lot of lenders will work with you, but you have to be in contact with them," Taylor says. "That's the main thing. Call them."
Lenders offer options
Some lenders will agree to reduce or suspend regular mortgage payments temporarily. A three-month suspension is what their lender offered Everett's Brian and Cornelia Gauger after Brian showed his Boeing layoff was a result of the Sept. 11 attacks. He was a contract software engineer who's still unemployed.
Very proactive in dealing with his situation, Gauger, who's depleting his kids' college funds, says Beaton's agency was especially helpful when his lender's collections department, unaware of the suspended-payments agreement issued by a different department, began aggressively dunning him.
"It was pure Kafka, only with computers," Gauger says. "We needed people like the Fremont Public Association because there were people who said they were going to take my house away, and what was I going to do?" The dunning notes have stopped.
Another option for homeowners is to modify the mortgage, changing the interest rate or adding the missing payments onto the loan amount. A common option is simply to work out a plan to make up the missing payments.
Bill Garland, president of Fairbanks Capital, which administers loans for roughly 30 lenders throughout the U.S., says lenders would much rather work out a plan than seize someone's home.
"That's the last thing lenders want, because they're not real-estate investors," he says. "And in a foreclosed situation, we typically still incur some sort of loss, so that's not the preferable solution to us."
But while putting a recovery plan on paper sounds straightforward, often it's not. That's where the Fremont Public Association's counselors become advocates, working directly with lenders.
Some lenders, Beaton says bluntly, "are aggressive and hard to deal with. And people who get behind in loans get stuck in collections. It's not until you get someone who has the authority to look at other strategies that we can negotiate. Sometimes we have to push a little."
Sometimes they have to push the clients, too.
Homeowners capable of going on a financial diet often can be successful, but Beaton says they must be ruthless. They clip coupons and cut out restaurant meals, new clothes, cable TV, vacations. Some even sell their cars.
But others can't quite adjust. She recalls a couple who were within $150 a month — their regular recreational expenses — of making good their back payments. They refused to give up their fun and suffered the result.
Though Dator has no credit cards, Beaton says many homeowners in her position do, and they often carry hefty balances.
"The typical client experiencing reduced income doesn't have enough money to pay the big bill — the mortgage — so they pay the small ones," like credit cards. She says they shouldn't (nor should they continue charging).
Rather, they should set aside what they would pay toward their charge cards so that in a couple of months they'll have a full monthly payment for their mortgage lender. (Many lenders won't accept partial payments.)
Won't failing to pay their card charges tarnish the homeowner's credit? You bet, but Beaton argues it's a better choice than not paying the house note, which could remove the roof from over the homeowner's head. The same advice is given by the National Consumer Law Center.
And that's what Robyn Benjamin is doing: squeezing her budget dry. She closed on a two-bedroom condominium for herself and her autistic teenage son a week after Sept. 11. Two months later, she was laid off from Boeing.
"That threw me big-time," Benjamin says. "I was making $16.32 an hour, and in the real world outside of Boeing you don't come close to those wages."
Subsisting on unemployment while she weighs returning to school or work, Benjamin, like the others, has made paying her mortgage her priority.
Time will tell whether that will be enough.