Lenders re-learning PR 101

By now we all probably know someone who took on a mortgage they couldn't afford, and now home prices have dropped in their area so they can't sell. So looking ahead to potential problems, they contact the lender, only to be told to go away until they're actually behind in their payments.

Now lenders are finding this approach to be a bit counter-productive (duh!), so they're trying other measures that to the rest of us seem quite obvious. But since it hasn't been so obvious, many
lenders are learning some important lessons in basic public relations. From an article in the Washington Post:

Mortgage lenders hunting for delinquent homeowners who have dodged their phone calls and letters are employing aggressive new methods to track them down, potentially making every knock on the door or fancy envelope seem like part of the pursuit. Even wedding invitations are suspect.

The idea, they say, isn't to twist arms. Instead, it's to avoid foreclosures, which have cost the mortgage industry billions of dollars in the past year.

Ocwen Financial is negotiating a deal with HomeFree-USA, a nonprofit group, to go door to door in the Washington area to strike deals with elusive borrowers. Fannie Mae is offering foreclosure lawyers up to $600 to help find solutions for these homeowners. Wells Fargo is disguising its letters in different colored envelopes, including some resembling wedding invitations.

Although some lenders initially resisted paying for assistance, the industry has begun backing community groups that help them find these borrowers. The math is simple: The typical foreclosure costs more than $50,000. It is usually cheaper and less time-consuming to lower the borrower's interest rate, put them on a repayment plan or sell the home at a loss. To stem the foreclosures, the mortgage industry says, lenders need to reach people they call "no-contact borrowers," those who have eluded or rebuffed them...

But there's a reason many people rebuff the lenders -- for many it's become a mindset of "too little, too late!"

Many of these homeowners do not expect, or trust, offers of help from their lenders, say community groups that have become active in this work. Some borrowers tried reaching out before an interest rate increase pushed the monthly payments out of their reach, only to be told to call back after they fell behind.

"They feel that the lender has put them into this bind, so they are not returning phone calls," said Marcia J. Griffin, president of HomeFree-USA, a local group that works with home buyers and homeowners...

And sometimes the advice given by lenders is simply irresponsible. Can you see Suze Ormon recommending raiding a retirement account or a college fund? Wouldn't happen. She'd probably recommend a short sale.

Many borrowers have been pursued before by aggressive debt collectors who encouraged them to use their retirement accounts, borrow from family members or raid their child's college fund to catch up on their bills, said Michael Shea, executive director of Acorn Housing, a counseling agency. "They badger you until [you] don't want to talk to the servicer again," he said. "By then, [you] don't even want to answer the phone."

Other times, it's bureaucratic bungling by companies which have made it difficult to contact the right department or people:

Even though lenders said they were reaching out, it remains difficult to work out deals, said Mosi Harrington, executive director of Housing Initiative Partnership in Prince George's County. "We have cases that we have tried for two months to get paperwork to the right department," she said. "They put you on hold for half an hour, and the phone clicks off."

My favorite response is "She's not at her desk right now," when she's probably 2 feet away, waving her arms and mouthing the words, "Not done with my bagel!"

Wells Fargo, for one, is trying sneak attacks and bribes:

Wells Fargo estimated that it had no contact with about 30 percent of delinquent homeowners who went into foreclosure in 2006. Last year, it began testing envelopes in bold or unusual colors or resembling wedding invitations.

Last month, it began experimenting with offering $250 gift cards to delinquent borrowers who had been unreachable, said Joe Ohayon, a Wells Fargo vice president.

Other lenders, knowing that their now-mangled reputations can only hurt them, have been partnering with community groups, which is probably the best idea of all:

Other lenders are focusing on building relationships with community groups. While borrowers typically respond to 3 to 5 percent of the letters sent out by lenders, they respond to about a quarter of those from such grass-roots groups, according to the Hope Now Alliance, a nonprofit organization funded by mortgage lenders.

Sometimes just using a community group's name is enough: Chase, which services $600 billion in loans, sends letters on Acorn letterhead and pays the group to leave its door hangers at the homes of borrowers it has not reached otherwise. When Ocwen, a subprime servicer, reached out to borrowers on Hope Now letterhead in December, it had a 15 percent response rate...

HomeFree-USA expects to begin knocking on doors for Ocwen next month. The group's relationship with the company will not influence the advice borrowers receive, HomeFree's Griffin said.

"A homeowner who really needs to sell their home, they are going to take it a little better from us than if a lender tells you, 'You need to go and sell your house,' " she said.

Perhaps lenders simply need to hire some PR experts with a dash of common sense who can argue for an obvious solution well before it seeps into the heads of senior management. Just an idea.