Publication DateSeptember 2009
Author(s)David Andrew Smith, Janneke Ratcliffe, Louis Perwien
On radio and television, in advertisements and public service announcements, we have all heard what seems like a simple message: “If you are behind on your mortgage loan, contact your lender.” But is dealing with a troubled mortgage really that simple? Is it possible that the recent foreclosure crisis could have been prevented if a few million homeowners had simply called their lenders seeking assistance?
To help answer this question, we turned to people working on the “front lines” of the housing crisis: foreclosure-intervention counselors. In the midst of the current mortgage foreclosure crisis, foreclosure-intervention counselors serve as mediators between troubled homeowners and their mortgage servicers. They have a first-hand look into the conditions of homeowners facing foreclosure, as well as into how mortgage servicers are responding to homeowners in crisis. This approach gave us access to the experiences of a broad spectrum of homeowners in various markets. It also specifically opened the door on borrowers who showed a desire to save their homes and proactively sought out assistance.
We conducted focus group discussions with 40 counselors in 16 agencies in 12 states in all regions of the country between October 2008 and January 2009. These discussions revealed several important trends:
- Borrower experiences with servicers can be extremely unproductive and frustrating and are often unsuccessful at keeping borrowers in their homes. Indeed, even for the most diligent homeowners or those armed with the assistance of a professional foreclosure prevention counselor, the process of loss mitigation can be lengthy and arduous and may well contribute to the borrower losing his or her home.
- Lack of capacity and accessibility of loss mitigation personnel at mortgage servicers present serious obstacles to the successful modification of delinquent loans. Areas in which servicers need to improve include accessibility, efficiency, communication, consistency, and offering solutions that actually help homeowners stay in their homes.
- Counselors can be a value-added intermediary for both borrowers and servicers; however, counselors are overworked, under-funded, and not used efficiently by servicers. Counselors often waste time trying to communicate with servicers, time that could have been spent helping borrowers.
We also recognized that the foreclosure crisis and servicer responses to it are constantly evolving. In August of 2009, we checked in with the same agencies (13 of the 16 participated) to see where they had noticed improvements or deterioration. This follow-up highlighted good news and bad news:
- We observed positive signs that servicers were becoming more responsive. Particularly since the launch of the Obama Administration’s Making Home Affordable (MHA) program in early 2009, there were indications of at least modest improvement in servicer willingness to seek solutions.
- The fundamental problems mentioned above persisted however. MHA implementation has been slow and spotty, while borrowers’ increased demand for assistance has actually bogged some servicers and counselors down.
- Meanwhile, deteriorating conditions are getting ahead of efforts. As of August 2009, counselors reported the growing impact of job and income losses on causing households to default. And, despite continuing value declines and more and more borrowers owing more than their home is worth, we learned of a near total lack of modifications to reduce loan amounts.
Thus, despite reports of many steps in the right direction we come to the conclusion that the traditional servicing model is not set up to meet the challenge of stanching the foreclosure losses. Our report closes with some recommendations for improved foreclosure prevention.