By MARY RUOFF

Copyright © 2003 Blethen Maine Newspapers Inc.

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Foreclosures have edged up along with unemployment in the past few years, but not as much as one might expect. The strong housing market has helped many financially strapped home owners sidestep this painful legal process. Not that they get to keep their homes. Rather, banks and mortgage companies work with them as they sell their property on the open market, avoiding the added cost and hassle of foreclosure. Borrowers also come out ahead, or at least less far behind. Without a foreclosure staining their credit record, it will be easier for them to buy again when they're back on their feet.

A "preforeclosure sale," as it's called in the lending industry, isn't the only way out of foreclosure for home owners struggling to make house payments after divorce, death, illness or unemployment slashes their household income. Lenders will work with delinquent borrowers to help them keep their homes, perhaps by extending a loan's maturity date. More help is available for home owners with Federal Housing Administration-backed loans.

Property owners faced with the possibility of losing their home are urged to call their lender. Let them know a payment may be delayed or missed and explain the reasons your financial circumstances have changed. All too often, embarrassment keeps homeowners from taking this crucial first step, according to lenders and consumer advocates.

"Instead of putting your head in the sand, it's much more worthwhile to give the bank a call," said William Baker, assistant vice president and collection manager at Gorham Savings Bank, which has six offices in Greater Portland. "We're going to help you work through it."

Lenders must refer borrowers facing the possibility of foreclosure to organizations like Portland-based Consumer Credit Counseling Services of Maine. "The amount of foreclosure-problem counseling we've been doing has increased significantly in the last few years — it's a steady flow of people," said Jennifer Tarr, supervisor of counseling at the nonprofit agency, which is certified by the Federal Department of Housing and Urban Development to do housing counseling. "The biggest complaint from lenders is that they don't have the communication from the consumer."

Nationally, mortgage delinquencies peaked after increasing in 2001 and the first half of 2002, dropping from 4.77 percent of all mortgages at the end of the second quarter to 4.53 percent by year's end, according to the Mortgage Bankers Association delinquency survey. The number of loans entering the foreclosure process declined from 0.38 percent to 0.35 percent during the same half-year period. Loans in foreclosure rose slightly, from 1.13 to 1.18 percent, but a drop in that figure typically lags a decline in delinquencies. The association doesn't expect a "major improvement" in delinquencies anytime soon.

Lenders in the Portland area expressed concern that foreclosures could start to increase.

"Obviously, when the economy is in a downturn, there's more exposure to the potential for foreclosures," said Anthony Armstrong, an attorney and president of Maine Home Mortgage, which has offices in Portland, Lewiston and Bangor. Baker noted that many people have taken out home equity lines of credit, which carry variable interest rates. If rates go up, which is expected to start happening later this year, these borrowers will be at greater risk.

At Gorham Savings, the number of problem loans has risen slightly in the past year few years. The bank did about 10 foreclosures last year and expects the same number in 2003. For every home it forecloses on, however, another two are sold on the open market. With property values so high, Gorham Savings hasn't lost money on a foreclosure in four years, since even at a foreclosure auction properties go for more than what's owed.

Foreclosures were harder to avoid in previous economic downturns. This time around, the housing market has been resilient, with low interest rates and a tight supply helping drive up demand and prices. For the three months that ended in January, the median home sale price in Cumberland County was $190,000, up 22.58 percent from a year earlier, when it stood at $155,000. In York County, the figure leaped 17.24 percent, from $156,000 to $182,900. Statewide the figures were less but still substantial, with the median price rising from $126,000 to $145,000, an increase of 15.08 percent. All of this follows several years of increases.

Divorce is one of the main reasons people find themselves facing the threat of foreclosure, Baker noted, adding, "Unfortunately, lawyers tell people not to pay anything while getting divorced."

Excessive credit card spending is a common problem, one that divorce, illness or unemployment can quickly exasperate. People in financial straits often pay their credit cards before paying their mortgage, said Tarr. Since credit card debt isn't secured by your home, make your mortgage the priority, she urged.

In the past, the agency often advised homeowners to consolidate debt and lower monthly payments by refinancing or taking out a home-equity loan. These days that's less likely to be an option. Many clients have already taken such steps, paying off credit cards only to run them up again. If you have two mortgages, it's harder to avoid foreclosure.

Mortgage companies make about two-thirds of Maine home loans, which are often "packaged" and sold to large corporations that invest in and service mortgages. Banks also sell home loans to these companies, though to a lesser degree. Some large national mortgage holders also make loans directly. GMAC Mortgage is an example of that. Like Gorham Savings, it pledges to work with customers who have fallen behind on payments. "Our goal is to keep you in your home and resolve the delinquency," states its Web site, www.gmacmortgage.com (search "Avoid Foreclosure").

Tarr prefers dealing with Maine-based lenders but notes that all mortgage holders start moving to foreclosure once a mortgage is 60 days past due. Whether you're dealing with a neighborhood bank or a national mortgage company, lenders have options for people who are struggling to make payments, she stressed. Besides selling your home, they include: