The Corporate Citizen, September 2007

Section: Features

Businesses Respond to Subprime Mortgages 

Amid the slew of activity aimed at decreasing foreclosures in the subprime mortgage market, some proactive corporate responses have been overlooked. Some companies are actively figuring out ways to help low-income homeowners weather the subprime crisis.

Every subprime mortgage borrower in the country is linked to a lender with which they interact on a monthly basis through the traditional lender-borrower relationship of receiving a loan and making regular payments against it. A common misconception is that lenders "win" when a customer forecloses.
 
The truth is, foreclosures are bad for everyone involved—the borrower, the lending institution, the broader community, and as we have seen recently, the capital markets. When crisis hits, mortgage lenders' corporate citizenship practices can be a highly effective way to help people stay in their homes. Many lenders are making great efforts to assist borrowers who are at risk of foreclosure. 
 
So, what are some civic-minded mortgage companies doing? 
 
The Homeownership Preservation Foundation, sponsored by Citibank, Countrywide, GMAC ResCap, Fannie Mae, HSBC, JPMorgan Chase, Ocwen, and Washington Mutual, among others, is a free, 24/7 hotline (1-888-995-HOPE) staffed by 80 housing counselors. The hotline has historically helped customers avoid foreclosure in more than half of its cases. In the first quarter of 2007—when the foreclosure crisis began to heat up—it served almost 7,000 homeowners. 
 
Some companies are taking steps on an individual basis, as well.
 
Citi attempts to contact a borrower promptly by phone and by letter when a payment is missed in order to achieve early and appropriate intervention. After three missed payments, Citi advises borrowers of the availability of free credit counseling by an independent third-party nonprofit counselor. For adjustable rate mortgage (ARM) borrowers, Citi offers the opportunity to refinance six months prior to the first scheduled reset. The company contacts the customer continuously until, and even after, the rate resets. 
 
At Chase, in addition to early communications with at-risk consumers, the company created a Homeownership Preservation Office in 2004. In three years, the office has facilitated more than 50 foreclosure prevention training sessions for more that 1,800 participants. 
 
HSBC has partnered with at least eight nonprofits around the country to provide at-risk homeowners with counseling services and even loan modification. This could include interest rate reductions, late fees waivers, deferral of unpaid interest, and other strategies. Their most recent partnership is a $1-million grant to provide debt management, bridge grants, and one-on-one counseling to customers experiencing financial hardship. 

Wells Fargo proactively contacts customers with impending ARM resets, offers a toll-free number that consumers can call to discuss solutions with a Wells Fargo expert, provides credit-management education programs, and works with customers up to the actual point of foreclosure to help them prevent it. 

Not everyone is perfect. Not everyone who is a subprime borrower is poor. Some of these borrowers are speculators who became over-extended. On the creditor side, as business publications like the Wall Street Journal and BusinessWeek have pointed out, some lenders have made risky and dubious decisions. The derivatives industry has also re-packaged some of these loans in ways that disguise their underlying risk.
 
That being said, the above-mentioned companies are examples of how some lenders are taking proactive measures to assist customers who have trouble paying their bills—and many of these companies were offering their services well before the current crisis began. 

Critics often have a tendency to blame an entire industry for individual practices instead of focusing on how single companies are addressing the situation or how different interlocking systems can create a break-down. The subprime crisis is a perfect case study for members of Congress, the media, and policy analysts to look deeper at more than just the aggregate numbers.
 
While it may be difficult to predict the foreclosure rate in the coming months, good corporate citizenship and community outreach by some outstanding lenders shows how leading corporate citizens are working with struggling communities and families to achieve—and keep—the American Dream.
 

Back to Sept. 2007 Newsletter