The New York Times

Busy Judy Brzuskiewicz, a home loan counselor in New Jersey.

Mortgage Crisis
Someone to Speak for Borrowers in Trouble

The New York Times — Sunday, February 17, 2008



As she leafed through her client's mortgage papers, the housing loan counselor just shook her head.

The numbers and interest rates and payment schedules formed such a familiar, dispiriting picture. The 32-year-old man who was sitting across the desk from her said he had been persuaded to take out an adjustable rate mortgage called an option ARM when he bought his home, the first he has owned. The terms of the loan put him in danger of joining millions of people dragged under by the mortgage crisis that has washed through towns and cities across the country.

But this client, a waiter, had not yet fallen behind on his payments, so there was still time to help him.

The loan counselor, Judy Brzuskiewicz of New Jersey Citizen Action, a nonprofit advocacy group in Newark, picked up the phone. She called the lender, Countrywide Financial, and told the representative that her client still had good credit and needed the 9 percent interest rate on his mortgage lowered, maybe to 6 percent. Politely but insistently, she said the adjustable rate needed to be frozen.

"I'm counting on you," she told the representative, who told her that he fielded calls like hers all day long.

Day after day, Ms. Brzuskiewicz and counselors like her across the country keep making the same calls, trying to stand between homeowners who took out loans they say that they did not comprehend, or could not afford, and foreclosure.

Last year more than 1.4 million first-time mortgage holders defaulted on their loans, the first stage of the foreclosure process, according to Mark Zandi, the chief economist at Moody's A Federal Reserve Bank of New York study of 75 percent of the subprime loans held by homeowners in New York, New Jersey and Connecticut found that as of late last year 9.9 percent of those examined were in foreclosure, or about 12,147 of 123,200.

In New Jersey, the study reviewed 3,062 subprime loans held by homeowners in Newark and found that 16.6 percent were in foreclosure. In Elizabeth, 15 percent of the 2,295 subprime loans studied were in foreclosure; and in Paterson, the figure was 12.8 percent of the 1,997 subprime loans reviewed.

The housing counselors say they are overwhelmed. Clarine Boone, a housing counselor for a nonprofit organization based in Bellport, N.Y., on Long Island, said her agency had fielded calls from more homeowners from October through December than she had in the previous year. "In 19 years of counseling, it hasn't been this bad," she said.

Last week, the Bush administration worked out a plan with some major mortgage lenders that would allow some homeowners facing foreclosure to delay losing their homes for 30 days. Although the lenders are not required to do so, they can use the 30-day window to agree to more affordable mortgage terms. Borrowers who are at least three months behind on their mortgage payments can apply.

As the mortgage picture darkens, the housing counselors have seen their roles shift and take on new importance. Where once they mainly counseled first-time home buyers and brokered affordable mortgages, they now take calls from increasing numbers of homeowners in crisis. The counselors negotiate with lenders for lower interest rates, propose payment plans, or – in the worst cases – are reduced to offering sympathetic words for those on the verge of foreclosure.

"The housing counselors are important intermediaries," said Ira Rheingold, the executive director of the Boston-based National Association of Consumer Advocates. "It's almost impossible for a normal human being to interact with a lender."

John Mechem, a spokesman for the Mortgage Bankers Association, acknowledged that lenders were "the last people" delinquent borrowers wanted to speak with. "Our lenders lose between $20,000 and $40,000 for each foreclosure," he said. "There is a real value in having third-party counselors."

The 32-year-old man whom Ms. Brzuskiewicz is trying to help remains, for the time being, one of the lucky ones. Housing counselors say borrowers usually seek their help too late, clutching unopened delinquency letters from their lender, along with their mortgage papers, which seem written in a foreign language.

According to a 2007 study by Freddie Mac, less than half of all delinquent borrowers know that housing counseling is available as an option to them. Nearly 75 percent of those borrowers said they would take advantage of counseling.

The Department of Housing and Urban Development accredits more than 2,300 agencies across the country that provide free or low-cost counseling services to borrowers. About 200 of those agencies, which offer programs like assistance for renters and cautionary workshops on predatory lending, are in the region. But consumer advocates say the counselors are overburdened and always short on cash.

That could be starting to change. In December, as part of the latest Congressional appropriations bill, lawmakers approved $180 million in new money for counseling and foreclosure prevention, an amount consumer advocates said was unprecedented and underscored the depth of the housing market problem.

In Bridgeport, Conn., a city that in 2006 had some of the highest subprime lending rates in the state, Julissa Soto, a housing counselor with Acorn, a housing advocacy group, said that demand was so high that the organization recently trained its 21-year-old administrative assistant as a counselor.

"We're totally bombarded," said Ms. Soto, who is 25.

The homeowners reach out when they are at wits' end, and almost beyond help. "They're frantic, and they don't know what to do," Ms. Soto said. This month, she counseled a family with problems that are becoming more and more typical, requiring that the counselors act both as therapists and financial advisers. A Bridgeport police officer and his wife, a schoolteacher, had taken out a mortgage with an adjustable rate, and their monthly payments now totaled more than $3,000. "He had perfect credit," Ms. Soto said of the officer. "Their car got repossessed. He feels ashamed that he can't provide for his family."

Ms. Soto is trying to negotiate with the lender, Wells Fargo, to freeze the interest rate on the couple's mortgage, but they have already fallen two months behind.

In the rush to buy a home, borrowers often fail to see the red flags in their mortgage papers. Annette Thomas Allen, a housing counselor with the Burlington County Community Action Program, said a flood of homeowners were coming into her office now, worried about future adjustments to their interest rates.

"All they could see is Thanksgiving dinner on the table," she said. "Someone told them, 'I can make it happen for you.' They didn't say what it costs."

Ms. Allen is trying to help Donea and Cheryl Fish keep the four-bedroom home they bought two years ago. Their mortgage payments have already climbed well past what they can pay, and last week, they received their first foreclosure notice.

"The mortgage was confusing, and there are a lot of things I should have questioned," said Mr. Fish, who works as a mechanic. "I was just happy to get a house." Their ranch-style home, in Willingboro, is not ready for holiday dinners: So far, they cannot afford to furnish it.

Mrs. Fish said her own attempts to negotiate with the lender, Saxon Home Mortgage, have gone nowhere. And she would not be helped by the aid plan announced by President Bush on Tuesday to provide a 30-day pause on foreclosure proceedings; her lender was not one of the participants.

She said she was relying on Ms. Allen, adding, "I'm scared."

Consumer advocates say the value of credit counseling was overlooked in the past.

"I think people are beginning to realize there should have been a more aggressive program for counseling," said William P. Binzel, the executive vice president at the National Foundation of Credit Counseling. "Even with the panoply of disclosures that are required now, for some people, it's not enough. They need someone who has no vested interest in closing the loan."

The practice of housing counseling emerged in the late 1960's, but scholars say its effectiveness, for a variety of reasons, has not been closely examined. A few of the studies available have found that counseling can reduce the rates of borrower default. A 2002 study by Ohio State University found that certain types of counseling were especially effective with inner-city borrowers; another study concluded that individual counseling sessions were more effective at reducing rates of default than classroom sessions, and that telephone counseling was the least effective.

Ms. Boone, the counselor in Bellport, said she fields crisis calls often, but pushes to see her clients in person. "You've got to talk face to face," she said. "I can see whether the client is understanding what I'm saying."

The 32-year-old man in Newark said he found Ms. Brzuskiewicz only after friends told him he should get advice on his loan.

Phyllis Salowe-Kaye, New Jersey Citizen Action's executive director, said that in 2007 she had seen a 40 percent increase in clients seeking so-called crisis counseling. Some consumer advocates say this is the most expensive kind of counseling. Unlike people who seek pre-purchase counseling, borrowers in crisis require long hours of individual attention.

Ms. Salowe-Kaye said her office could not handle more crisis work. "Unless someone increases my funding, we're not going to be advertising," she said. Ms. Brzuskiewicz, who has lived in Newark all of her life, worked at a credit union for 20 years before becoming a housing counselor. "I worked with people who had money and were trying to make just a little more with conservative investments," she said, adding that the work she does now could not be more different.

Newark and towns surrounding it have been hard hit by the mortgage crisis, and Ms. Brzuskiewicz said many of her clients had bought multifamily homes from mortgage brokers, thinking they would be easy to rent.

The 32-year-old had bought a two-family home in Bloomfield. But even though he had been able to keep a tenant, his mortgage contained perilous traps – a large "balloon payment" at the end of the loan, along with a penalty for early prepayment. Ms. Brzuskiewicz tried to explain the details to him.

His house had apparently been over-appraised, he said, adding, "I trust people a bit too much."

After they had finished speaking with the Countrywide Financial representative, the man left, saying he did not believe the bank would be able to help him. Ms. Brzuskiewicz said they would wait to see some sort of an agreement in writing. She worked till 9 that night, writing the appeal on his behalf.

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