According to mortgage counselor, Frank Smith and vice president Frank Demarais at nonprofit, Manna Mortgage, the mortgage crisis to date has been driven by homeowners caught in high-cost loans they don’t understand, who get caught off guard when rate adjustments make their payments unaffordable. Manna Mortgage is the first and only nonprofit mortgage loan company in Washington, DC. It estimates that more than 30 percent of all loans originated in the District in 2004-2006 were complicated, high-cost Adjustable Rate Mortgage (ARM) loans (2/28 subprime ARMs, Option ARMs, Interest Only ARMs) representing tens of thousands of home owners. The increase in the mortgage payments on these loans, resets, have only just begun to impact home owners in 2006-2007, and there are three to four more years of resets to live through.
Manna Mortgage, and other counseling organizations, need to reach homeowners who are in bad loans who can still be helped. The majority of homeowners seeking counseling are already behind on loan payments. We need to find ways to reach people before the rate resets exhaust all their reserves and they fall behind. Homeowners already behind on their payments have many fewer options—selling to capture their remaining home value, giving their title to the lender, or going into foreclosure. There are many more home owners who still have alternatives to stabilize their mortgage payments and family finances before the ARM payment adjustments hurt them. Manna’s limited non-profit resources are being used to advertise and write monthly articles in community newspapers, send out canvass letters to homeowners, and to speak on these topics at whatever forums. Education and outreach efforts by nonprofit organizations are not up to the challenge presented by the massive number of at-risk home owners in high-cost loans.
Manna said this is a major financial industry-instigated crisis, which needs new, more effective means of outreach to at-risk residents. If a major campaign were led by appropriate high-profile District officials, with financial industry partners, directing home owners with complicated high cost loans to contact the District-funded counseling organizations before they fall behind, we believe that the subprime and high-cost loan impact could be reduced materially, although certainly not eliminated. Expert counseling could help home owners who don’t know what is coming at them to take action to avoid the worst of the impact of their high-cost mortgages.