Thursday, December 29, 2011

Counseled Homeowners Get Better Loan Mods, Avoid Foreclosure

A report issued yesterday by NeighborWorks America shows that homeowners who received National Foreclosure Mitigation Counseling Program assistance were nearly twice as likely to obtain a mortgage modification and at least 67 percent more likely to remain current on their mortgage nine months after receiving one.

The study (, prepared for NeighborWorks America by the Urban Institute on the consumer benefits of the NFMC program, also showed that homeowners received, on average, a mortgage modification that lowered their payment by $176 more per month, than homeowners who didn’t work with an NFMC counselor--a savings of nearly $2,100 a year. “By significantly reducing the chance that a homeowner re-defaults after a mortgage modification, servicers are saved added expense,” said NeighborWorks America CEO Eileen Fitzgerald. “This tells us that increased servicer investment in partnerships with nonprofit counselors is a win for everyone.”

The Urban Institute recently completed a three-year evaluation
of Rounds 1 and 2 of the NFMC program. Using a representative NFMC sample of 180,000 loans and a comparison non-NFMC sample of 155,000 loans, the Urban Institute was able to isolate the impact of NFMC counseling on loan performance through December 2010.
The final evaluation of Rounds 1 and 2 conducted by Urban Institute demonstrated positive effects for homeowners participating in the NFMC program. Counseled homeowners were more likely to receive better loan modifications, cure a serious delinquency or foreclosure and stay current, and avoid a foreclosure completion altogether.
Other findings of the study:
• Counseling greatly increased the ability of homeowners to stay
current once they cured a serious delinquency or foreclosure. Counseled
homeowners were at least 67 percent more likely to remain current on their mortgage nine months after receiving a loan modification cure. A small part of this effect is attributable to the impact of counseling on the size of monthly payment reductions. However, the study noted a significant part is attributable to other positive impacts of counseling, such as helping homeowners improve their financial management skills and assisting them in managing relationships with servicers.
• NFMC counseling made it more likely that homeowners would
receive a loan modification cure in the first place, increasing by at least 89 percent the relative odds of modification cures for counseled homeowners compared to non-counseled ones. The study said the federal Home Affordable Mortgage Progam amplified this positive effect. In the period before HAMP, 8 percent of homeowners receiving counseling assistance had modification cures, compared to 5 percent who did not receive counseling. Post-HAMP, 17 percent of homeowners receiving counseling assistance had modification cures, compared to 9 percent without.
• Counseled homeowners received loan modifications resulting in
a monthly payment that was $176 less, on average, than non-counseled borrowers, a savings of close to $2,100 a year. This savings was achieved on loans modified either before or after HAMP was implemented.
The study said “the great bulk of the sustainability benefit resulted from other impacts of counseling, such as helping borrowers to improve
their financial management skills, assisting them in managing relationships with servicers/investors, and providing other types of support.”

Last month, the Obama Administration released its November Housing Scorecard, reporting more than 5.4 million modification arrangements were started between April 2009 and the end of October. The reported modifications included more than 1.7 million HAMP trial modification starts; more than 1.1 million FHA loss mitigation and early delinquency interventions; and more than 2.5 million proprietary modifications
under HOPE NOW, the voluntary, private sector alliance of mortgage servicers, investors, mortgage insurers and non-profit counselors (of
which the Mortgage Bankers Association is a founding member).
HOPE NOW said its October data showed that permanent loan modifications totaled nearly 80,000 for the month, bringing the total for the year to 885,000.Also last month, a white paper from STRATMOR
Group, Jacksonville, Fla., reported that providing holistic financial
counseling to borrowers who are at risk of default and foreclosure can not only prevent foreclosure, but also can reduce re-default rates for borrowers. The study, The Impact of Consumer Credit Counseling on Distressed Mortgage Loan Losses, said holistic financial counseling could reduce losses on a 10,000-file portfolio by as much as $71.5 million. The STRATMOR study said for borrowers receiving basic counseling, the losses avoided are estimated at $3,894 per borrower (or 185 bps for a $210,000 average loan balance). This benefit increases to $5,754 to $7,147 (274 bps to 340 bps) if borrowers receive "holistic" counseling that addresses not only mortgage debt but also credit card debt and modifications to personal spending patterns. Applied to a portfolio of 10,000 borrowers who receive
counseling, the $7,147 scalable benefit would translate into $71.47 million in losses avoided.

Matthew Lind, managing director of the STRATMOR Group and author of the study, said while traditional borrower counseling in default servicing focuses mainly on the monthly mortgage payment, integrating
holistic financial counseling addresses the entire spectrum of a borrower’s financial picture, including lifestyle decisions. He said holistic financial counselors help borrowers assess all the factors that go into monthly spending, including credit card debt, car payments and discretionary spending.

The NFMC program was launched in December 2007 with funds
appropriated by Congress to address the nationwide foreclosure crisis by
increasing availability of housing counseling for families at risk of
foreclosure. NeighborWorks America distributes funds to competitively selected grantee organizations, which in turn provide the counseling services, either directly or through subgrantee organizations. Grants are also being made to fund legal assistance to homeowners, and to train foreclosure counselors. Upwards of 1,700 counseling agencies operate under the program.


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