By late spring 2016, NeighborWorks America will pass a milestone that none of us in the housing community wanted to reach, let alone exceed. Since being asked by Congress to manage the National Foreclosure Mitigation Counseling program in 2007, close to 2 million homeowners have been helped by the program, and about 3.8 million more have faced foreclosure without the assistance of a trained housing counselor. More importantly, while the rate of home foreclosure has slowed, and is approaching more normal levels, normal levels mean that as many as a quarter of a million households – 28 families every hour, every day — will face foreclosure each year.
And while the housing market seems to be trending to a lower rate of home foreclosure, those of us in the nonprofit housing counseling industry have not taken our eyes off of the ball. We know firsthand that the foreclosure crisis has not disappeared, and that solutions put into place just a few years ago are ending, putting more homeowners who may face job loss in the future, costly illness and other financial hardships, in jeopardy. The phones continue to ring in the offices of the more than 1,100 foreclosure prevention counseling organizations funded by the NFMC program, and the counselors still see homeowners who are struggling financially after the Great Recession.
But the landscape isn’t all doom and gloom. Over the past eight years, housing counselors and the mortgage servicing industry have learned a lot, and it’s our joint responsibility to avoid the mistakes of the past, to maintain momentum, and to create new pathways for homeowner-centric loss mitigation practices that have sustainable homeownership as the No. 1 objective.
The reasons to stay focused are simple: Foreclosures cost servicers money and hurt the home value of non-delinquent owners living nearby.
Eight years of work has shown that success is best realized by focusing on the following agenda: consistent communication, innovative products, and training and education.
CONSISTENT COMMUNICATION
The first report produced by the NFMC program in September 2008 found serious problems in the ability of servicers to meaningfully connect with homeowners in distress and the housing counselors who worked on their behalf. Loss mitigation packages that homeowners and housing counselors sent to servicers for consideration were routinely lost. Homeowners were constantly frustrated by the process, including being shunted from one servicer staff person to another, often having to retell circumstances and resubmit materials.
When NeighborWorks America sat down to design a comprehensive programmatic response to the foreclosure crisis, we strategized with other housing intermediaries, local nonprofits, servicers and other industry experts. Housing counselors soon realized that developing the mechanism to connect the mortgage servicer and the consumer was necessary. Simultaneous to the development of a consumer-counselor-servicer communications tool, nonprofits across the country had to find a way to reach homeowners early. We needed a marketing plan, as well as a technology solution.
The servicing industry recognized this problem and, together with the industry group HOPE NOW, and nonprofits, supported the development of Hope LoanPort (HLP). HLP is an online pathway for qualified housing counselors to submit loan-modification packages to the servicers to help a servicer determine if a homeowner could avoid foreclosure through a loan modification or other loss-mitigation tactic.
The online portal had its fits and starts. For one thing, a significant number of housing counseling agencies didn’t have the in-house technology to scan and upload the documents servicers needed to evaluate a homeowner’s case. With a grant from the Rockefeller Foundation, NeighborWorks was able to equip some of these nonprofits with the basic technology tools they would need to use HLP.
Servicer responsiveness was transformed, in part, because the major servicers got behind the idea of working with nonprofits not only on technology, but on marketing, too. HOPE NOW, in partnership with nonprofits and federal government agencies, started holding local homeowner-focused information sessions about the foreclosure-prevention process. These events are a very visible and highly marketed tool to inform homeowners about their foreclosure-prevention options.
In addition to technology and marketing, the loss-mitigation process was significantly improved by the development of the Single Point of Contact, or SPOC. Regulations put into place in 2009 that required servicers to assign a single staff person to a consumer working through a government-sponsored mortgage-modification case gave the housing counselor and homeowner someone to hold accountable. As a result, playing proverbial phone tag with the servicing department was greatly reduced, easing homeowner stress, increasing process work flow and ultimately helping more homeowners stay in their homes while limiting losses to the servicer.
A new partnership with the Ad Council also was forged that helped government, nonprofits and servicers reach consumers. The message — that the right move was to contact a housing counselor and the servicer — got through. A research study conducted by the Urban Institute on the efficacy of NFMC housing counseling found that homeowners who worked with a housing counselor achieved a much more sustainable mortgage modification than those homeowners who didn’t. Specifically, seriously delinquent counseled homeowners are nearly three times as likely to receive a loan modification cure compared to non-counseled homeowners. NFMC-counseled homeowners who received a modification had their annual payment reduced by an average of $4,980 and are less likely to default.
Critically, as housing counselors and servicers were improving their communication, they also were broadening their partnerships to fight a growing problem. Mortgage-modification scams were on the rise, and to help homeowners identify the right help and report potentially illegal activity, new alliances were formed with law enforcement and nonprofit legal service providers. These alliances have produced informational, consumer-friendly websites and adopted the national foreclosure prevention hotline —888-995-HOPE (4673) managed by the Homeownership Preservation Foundation — to provide a way for homeowners to report potential scams. The alliance with the Lawyers Committee for Civil Rights Under Law and others has seen more than 40,000 homeowners report mortgage-modification scams totaling in excess of $90 million. Better communication is fostering better outcomes.
INNOVATIVE PRODUCTS
To help reduce the number of homeowners who could fall prey to scams, the mortgage industry developed mortgage-modification products that worked for the consumer.
The federal government Home Affordable Mortgage Program and a variety of proprietary mortgage loan programs by servicers have either temporarily or permanently reduced mortgage interest rates for delinquent owners at risk of foreclosure to as low as 2%. This very low rate has given homeowners facing serious financial difficulty much-needed breathing room.
And while keeping an owner in his or her home is what everyone hopes to accomplish with foreclosure prevention, the fact is some people will be unable to stay in their homes. Over the last eight years, housing counselors and servicers have improved the short-sale and deed-in-lieu of foreclosure processes. This has enabled homeowners who can’t financially sustain their mortgage to achieve a “graceful exit,” and move into more sustainable housing.
For these homeowners who were unable to stay in their homes, the lending industry has shortened the time it takes to qualify for a new mortgage, enabling consumers to achieve affordable and sustainable homeownership in the near future. These changes to the “lock-out” period before a foreclosed homeowner could return to the market is a big deal, and was not available at this level prior to the housing crisis.
TRAINING AND EDUCATION
As important as these changes in policies and programs are, they won’t mean anything if servicing staff and housing counselors are not trained in how they work. For several months now servicers have been reducing their staffs, and that may be having an effect on the remaining staff’s ability to triage a consumer into the right loss-mitigation program.
Since the NFMC program began, NeighborWorks has provided more than 13,000 scholarships to housing counselors for training and separately awarded more than 10,000 certificates of completion to counselors who pursued training online. Nonprofit housing counseling agencies are committed to having a strong staff in place to meet the needs of homeowners who may face foreclosure.
WHAT’S NEXT?
Thousands of homeowners who received temporary mortgage modifications are facing resets of their agreements, with some facing increases in monthly mortgage payments that they will be unable to afford. Housing counselors in the NFMC program, and others, are bracing for the return of some of these homeowners.
A research report from the Urban Institute suggests that the first wave of resets will be “manageable,” but that over time the resets could be more serious.
New homeowners since the housing crisis may be less likely to fall into default and foreclosure. Credit scores on new originations since 2007 have been higher than in the run-up to the housing crisis. But as noted earlier, job loss is the No. 1 cause of mortgage delinquency and foreclosure. The economy is growing slowly, and income growth is also slow. Housing counselors and the servicing industry must remain vigilant and ready to work with homeowners who do fall into trouble and to prepare homeowners before they purchase a home so they wil be more resilient homeowners. Remember, nearly 100,000 homeowners fell into foreclo
