Tuesday, December 20, 2011

Impact of Credit Counseling on Distressed Mortgage Loan

From the White Paper prepared by the Stratmor Group

Based on the best of recent research investigating the impact of providing counseling to distressed mortgage borrowers, this research (White Paper) analyzes the incremental economic benefits, as measured by foreclosure, deed-in-lieu and short sale losses avoided, accruing to investors and servicers per counseled borrower versus non-counseled
borrowers, without regard to the costs of counseling. Additional benefits from loss avoidance, including expected improved cash flows and portfolio value, liquidity, operational and legal cost savings, etc. are not considered.
For borrowers receiving basic credit counseling, our analysis projects an average benefit per borrower of $3,894, without regard to whether or not the counseled obtained a loan modification. For counseled borrowers who obtain a modification, the incremental benefit increases to $17,948.

When borrowers receive "holistic"counseling --- counseling that not only addresses mortgage monthly payment but also credit card payment as well as modifications that result in lower personal spending patterns --- the average benefit per borrower increases to $5,754 to $7,147 as a result of additional monthly cash flow made available to meet mortgage obligations. This freed up cash, as a result of the borrower debt payment/personal spending restructuring, and estimated at an additional $300 per month, sharply lowers the redefault rate of borrowers who initially cure their loan through a loan modification.

The full White Paper canbe viewed at


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