Focus on foreclosures

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02/17/08: Banks' earnings hammered by sheer number of bad loans

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It was a financial bomb some homeowners had two years to diffuse but didn't.

Now they're faced with an "exploding ARM."

When the housing market was at its peak in 2006, many people signed off on adjustable-rate mortgages that started out with low interest rates, but after about two years or 28 months their rates are shooting up to unreasonable levels.

When the market was hot, refinancing into a fixed-rate loan after building equity in a home was considered the escape clause to avoid interest rate resets.

However, that option is disappearing as lenders tighten loan standards and home values decline.

Last year was bad and this year will be worse for many Ventura County homeowners stretched thin by a changing market, said Joy Thormodsgard, chief executive officer of Consumer Credit Counseling Service, an agency approved by the U.S. Department of Housing and Urban Development.

The nonprofit, an accredited credit counseling service for people in financial trouble in six California counties, including Ventura, has reported a flood of homeowners caught up in the subprime mortgage crisis, said Thormodsgard.

In December alone, about 600 people got notices of default on their homes, essentially the first step toward foreclosure, she said.

She and her two counselors have seen a huge jump in people facing possible foreclosures or the rough financial choice of walking away from their homes.

Sometimes all they can do is triage, Thormodsgard said, making efforts to soften the financial blow. Sometimes they can do more.

"What we see a lot of is that people wait too long," she said.

Out of denial or simple ignorance homeowners often delay seeking help. The longer they wait to either contact the banks or accredited credit counselors, the harder it is to stave off foreclosures.

More strapped homeowners are trying to renegotiate their loans with lenders.

Sometimes a bank will offer someone with good credit who can show that he or she is having a temporary financial setback an option to make minimum payments or freeze a rate increase or even refinance the loan. But it's relatively rare.

While she and her counselors have seen clear examples of predatory lending, particularly in Spanish-speaking communities, Thormodsgard said many of the problems she has seen could have been avoided with a little "pre-purchase education."

"We love credit, but many people don't understand it," she said. "There's a need for financial literacy. We have a lot of people who don't understand what they're getting into. They haven't educated themselves about it, and that gets them into trouble."

On March 1, the Credit Counseling Service is offering free sessions in Spanish and English for people concerned about foreclosure or debt. Several lenders will be on hand to discuss programs.

For more information call 800-540-CCCS. On the Web, go to http://www.gotdebt.org.

Where to get help

- U.S. Department of Housing and Urban Development provides information on approved consumer credit counselors, tips on avoiding foreclosure and information on tax issues related to renegotiating loans or foreclosure. 888-297-8685 or http://www.hud.gov/foreclosure/index.cfm.

- Hope Now is a nonprofit alliance of lenders and investors to help homeowners prevent foreclosure. It provides information on accredited consumer counselors and advice in renegotiating the terms of a loan. 888-995 HOPE or http://www.hopenow.com.

- Center for Responsible Lending provides information on lending practices at http://www.responsiblelending.org/index.html.

- Neighborhood Works America is a nonprofit coalition of community groups and businesses across the country with resources for those trying to prevent foreclosure. http://www.nw.org/network/home.asp.