Tips for homeowners under pressure

Delinquencies are rising as Americans suffer from persistent inflation and other strains on the economy.

According to the Mortgage Bankers Association’s National Delinquency Survey, the delinquency rate on one- to four-unit residential mortgages rose to a seasonally adjusted rate of 3.97 percent at the end of the second quarter.

Marina Walsh, vice president of industry analysis at MBA, said mortgage delinquencies remain low by historical standards, but the increase comes at the same time as unemployment increases.

That’s not surprising, considering that Americans are piling up credit card and other debt as inflation continues, so losing a job is an economic burden for many households. Total household debt rose $109 billion to $17.8 trillion in the second quarter, according to the Federal Reserve Bank of New York.

Authorities there reported that the number of delinquencies on car and credit card payments remained high.

What can homeowners under pressure do to protect their homes?

Donna Schmidt, managing director of DLS Servicing, said the best thing you can do to protect your home is to carefully plan your monthly budget. First, set up an emergency fund and then make sure your income is in line with your expenses.

“Forty years ago, lenders limited mortgage debt to 28% of income,” Schmidt said. “We also had fewer expenses. Today, we allow higher debt ratios, and most people believe that cell phones, cable TV and other subscriptions are essential, stretching the budget to the breaking point.”

Schmidt believes Americans are in for a bumpy ride through the end of the year, given rising unemployment.

“Twenty percent of our mitigation claims resulted in unemployment-related deferrals; the balances were primarily the result of over-commitments,” Schmidt said. “We typically see a spike in mitigation claims by mid-September, but we’re already seeing it in mid-August.”

This and other signs of an impending recession mean that homeowners need to take a close look at their monthly budgets and start cutting back on non-essential expenses.

“This increases the risk of recession, but households need to prepare for the worst,” she concluded.

Thanks to technological advances, service providers are finding new ways to reach borrowers and ensure they repay their mortgage loans on time.

Toby Wells, president of Cornerstone Servicing, said his company strives to build positive relationships with homeowners once they begin servicing their loans by offering them appropriate tools and resources.

“The overall cost of homeownership is increasing, primarily due to ever-increasing tax and insurance costs,” Wells said. “Timely and proactive engagement is key. First, when a homeowner’s expenses are increasing, we communicate this quickly to them rather than waiting for the next scheduled escrow analysis.”

Cornerstone Servicing educates homeowners on strategies to manage their expenses both short-term and long-term. For example, Wells said they recommend purchasing insurance each year to get the best protection at the best price and exploring solutions like property tax appeals and exemption filing services.

“We raise awareness of ways to lower monthly mortgage payments, such as repricing or canceling private mortgage insurance early when possible,” Wells said. “We also offer qualified homeowners home equity products that can provide emergency financial assistance for unexpected expenses or help them pay off high-interest debt at a much lower, fixed rate.”

Executives at Cornerstone Servicing say they use data-driven insights combined with timely, personalized communications to keep their delinquency rate well below the industry average.

“This allows us to use predictive analytics to identify at-risk homeowners long before they first default based on loan activity or regional trends such as changes in property taxes, insurance costs and unemployment rates,” Wells said. “From there, we can proactively target them with solutions and resources tailored to their needs.”

If a homeowner does fall into default, loss mitigation technologies can help them find the best mortgage assistance program for their circumstances, Wells said.

Editor Kimberley Haas contributed to this report.