Mortgage borrowers know that they don't know much
By Holden Lewis • Bankrate.com


You wouldn't believe what homeowners don't know about mortgages. No,
scratch that. Yes, you would.

Some recent industry-commissioned polls show that consumers don't feel
knowledgeable about home loans and they don't know what to do if they
fall behind on their monthly payments. Furthermore, they view their
homes as secure piggy banks -- a notion with some merit, as long as
they realize that loans against equity have to be repaid with
interest.

The most refreshing message coming out of these polls is this: People
are aware of their gaps in knowledge. What's less clear is whether
they know where to go to get the information they need. They certainly
aren't seeking advice from the debt-averse generation that grew up
during the Depression.

Want to try your knowledge before continuing? Take our quiz.

Blind to the options
In a survey conducted by Radian Guaranty, a mortgage insurance
company, 52 percent of the homeowners said they didn't know much about
the mortgage options that were available when they bought their homes.

The question, "How much did you know about your mortgage options"
leaves a lot of room for interpretation, but it's unambiguous that a
lot of borrowers wish they had known more when they signed on the
dotted line.

Although they felt like they didn't know enough, these homeowners
weren't dummies. Homeowners were asked what two pieces of advice they
would give to prospective home buyers. More than half of the
respondents would tell home buyers to figure out how much house they
could afford. Another 45 percent would suggest that the buyer find out
about all the various mortgage options, and 36 percent would recommend
getting preapproved for a mortgage before looking for a house.

That's the right idea, says Radian's executive vice president for
mortgage insurance, Mark Casale, in a press release. "Certainly,
having the foresight to get pre-approved will help prospective buyers
focus on the right price range."

Delinquent? Pick up the phone
While about half of home buyers say they didn't know about all of
their mortgage options, things are worse for those unfortunate
homeowners who fall at least a month behind on their payments. More
than 60 percent of these delinquent borrowers don't know of the
various workout options that are available to them, according to a
survey commissioned by Freddie Mac, the mortgage funding giant.

People don't know their options because they don't call their loan
servicer. Three-quarters of delinquent borrowers recall being
contacted by their servicers. It's hard to forget those intimidating
collection calls. But fewer than half of the delinquent borrowers ever
contacted their lender. Presumably, they let the answering machine
pick up, and they never called back.

Bad move. Freddie Mac and rival Fannie Mae require mortgage servicers
to explore workout options with delinquent borrowers. Sometimes
something can be worked out, and sometimes it can't. But if you have
fallen behind by one or two months, it can't hurt to call the company
that collects the mortgage payments and see if something can be worked
out.

"That's the key thing," says Brad German, spokesman for Freddie Mac.
"How do we get more borrowers to follow up on those opportunities, on
those contacts?"


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