A study to determine why Reinstatement Services, Inc., borrowers are not utilizing loss mitigation programs

As concern over the costs associated with foreclosure mounts, mortgage finance experts and the government are working to establish programs that will assist borrowers in avoiding foreclosure, thereby reducing the financial impact on the national economy. Borrowers are also concerned because foreclosure not only negatively affects their credit but also strips them of their housing and financial investment. This study's purpose was to determine why defaulted mortgagors contacting Reinstatement Services, Inc., (RSI) for assistance during the third quarter of 2003 are not utilizing lender-sponsored loss mitigation programs.; Loss mitigation programs provide homeowners with alternatives to foreclosure. Industry experts have proven that in instances of default, applying a loss mitigation program is less costly than foreclosure. Understanding borrower perceptions regarding loss mitigation programs increases understanding of why borrowers are not utilizing those programs.; The population consisted of mortgagors who contacted RSI via electronic inquiry personally seeking workout relief. A sample group was selected using systematic sampling with a random start. Ultimately, the sample group was comprised of 33% (n = 116) of the population.; An interview tool was designed to capture data regarding borrower perceptions of loss mitigation availability. The information collected focused on borrower awareness of the existence of loss mitigation programs, borrower confidence that the programs would be useful to them in their effort to avoid foreclosure, and borrower perceptions concerning lender willingness to provide workout assistance.; An analysis of the data indicated that borrowers possess limited awareness about lender-sponsored loss mitigation programs. Additionally, mortgagors believed that their lenders had little willingness to provide assistance. Even so, mortgagors continue to contact their lender for help as a first line of defense.; For loss mitigation programs to become an effective foreclosure avoidance tool, homeowners must be made aware of the existence of such programs. Educating defaulted mortgagors on foreclosure avoidance strategies and applying situation-appropriate remedies will have the impact on the national economy that both GSEs and lenders desire. By working with homeowners to find a means of avoiding foreclosure, lenders will increase borrower confidence in program relevance and decrease borrower suspicions of lender motivation.