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Two large credit and housing counseling agencies have succeeded in reaching and working with some homeowners that servicers had been unable to reach.
Freddie Mac and seven residential mortgage loan servicers are working with the Consumer Credit Counseling Service of Greater Atlanta and the Consumer Credit Counseling Service of San Francisco to reach borrowers who were delinquent on their mortgage payments. The Atlanta nonprofit has 35 counselors who primarily provide delinquency and default counseling, while the San Francisco nonprofit has 17 counselors who primarily offer such counseling. Both nonprofits provide the counseling on a fee-for-service basis in the Freddie Mac partnership and in contracts with other servicers.
Freddie Mac drafted and mailed a letter and brochure to borrowers who were identified by the servicers. The letter explained that the nonprofits could provide financial and housing counseling and that options might include forbearance, a repayment plan, loan modification, or sale of the home.*
Bill Merrill, managing director of Freddie Mac’s nonperforming loan servicing unit, explained that Freddie Mac sent the letters and brochures to about 41,000 borrowers starting in the spring of 2005. The counselors initiated phone calls to borrowers around the country and succeeded in reaching about 10,000 of them – about 25 percent – while about 4 percent of the borrowers responded to the letters on their own, he said.
About 5,500 of the 10,000 borrowers had the delinquency “cured,” meaning that the loan was reinstated, paid off, or sent for a workout, as of the end of June 2007, Merrill said. The other 4,500 borrowers remained somewhere within the delinquency-to-REO (i.e., lender ownership) process. “Outbound phone contact is the most efficient method of communication and has produced the best results to increase contact rates,” he said.
Freddie Mac officials said the company paid the two nonprofits an annual administration fee and payments per counseling session and per “cure” but declined to disclose the amounts.
It also provided counselors at these and other nonprofits with one-day training events covering forbearance, repayment plans, loan modification options, and Freddie Mac procedures. Merrill said, “Delinquency counseling is a relatively new area and we wanted our free training program to help train new counselors to continue to build industry resources to help borrowers.”
Freddie Mac provides simultaneous training events for nonprofit counselors and servicers at regional campuses. Since April 2006, it has held 12 classes attended by 231 counselors, officials said.
Merrill said that “our biggest obstacles” in the outreach effort are overcoming borrowers’ reluctance to discuss their delinquency and their fear of a foreclosure rescue scam.
Ingrid Beckles, vice president of servicing and asset management at Freddie Mac, commented that amid rising delinquencies and foreclosures, “one of the important glimmers of hope is the value of intervention from a trusted third-party intermediary.
“We find 30-day delinquencies often cure themselves as homeowners become current after falling behind. Forty-five to 60 days is our sweet spot when we try to refer homeowners for counseling. After 90 days, it’s often too late. Legal fees that must be paid are triggered when foreclosure starts and arrearages become difficult to pay off.”
Beckles said that Freddie Mac rewards servicers that provide foreclosure alternatives. Freddie Mac increased its incentive to servicers for completed repayment plans from $200 to $250 if a delinquent loan is reinstated or paid off through a repayment plan when the plan starts after 60 days of delinquency. Freddie Mac has a 100-point performance profile for servicers. The workout-to-REO ratio represents 35 points in the profile.
Beckles added that Freddie Mac has shortened the period during which it gives servicers incentives for avoiding foreclosure to encourage earlier intervention with delinquent borrowers. The period was 120 days before 2004 and was reduced to 90 days in 2005 and 60 days in 2006, she said.
Michelle Jones, vice president of counseling at the Atlanta CCCS, said that “servicers started coming to us in 2004 looking for solutions in foreclosure prevention.” While servicers weren’t as interested in working with nonprofits five years ago, she said “now they’re really reaching out and want to help find solutions. They’re very interested in working with housing counseling agencies because they believe we can be helpful.”
Michelle Jones, CCCS of Greater Atlanta
The Atlanta CCCS saw the beginning of “a tremendous demand for services” and had the infrastructure to increase the number of delinquency and default counselors from four in 2004 to 35 currently, she said. Atlanta CCCS counselors are available to receive calls 24 hours a day, including weekends and holidays.
The counselors have names and phone numbers of key servicer contacts and a close working relationship with the servicers, Jones said. The counselors will also help develop loan workout packages as needed.
The vast majority of Atlanta CCCS delinquency and default counselors previously worked in the housing industry, for example, in servicing or loan origination. The counselors have a college degree, good credit, and must pass within their first six months of employment the six tests required by the National Foundation for Credit Counseling (NFCC) for credit counselor certification as well as an NFCC housing counseling test.
Jones shared these observations:
Rick Harper, vice president and director of housing at the San Francisco CCCS, said the nonprofit’s counselors call homeowners three or more times at different hours on different days. Many speak Spanish and other languages.
Harper said: “Nonprofits that want to establish delinquency and default counseling must make a real commitment in time and resources. They need a singular focus. They might want to design a business plan in conjunction with local credit unions and community banks that need this service.”
Harper said that he has seen “a warmer, friendlier attitude by the [servicing] industry.” He said that San Francisco CCCS counselors sometimes develop loss mitigation packages and added: “We see ourselves as an extension of the loss mitigation department, with our expertise being budgeting.
“Our counseling saves the lenders money. And it keeps people in their homes. It’s a nice combination.”
For information, contact Bill Merrill at william_ email@example.com; www.freddiemac.com; Michelle Jones at firstname.lastname@example.org; www.cccsinc.org; and Rick Harper at email@example.com; www.housingeducation.org.