Federal regulators are urging servicers to provide post-modification counseling to borrowers as a way to boost on-time payments and to help with the adjustment to higher mortgage rates.
Post-modification counseling is “extremely important” for borrowers in the Home Affordable Modification Program, according to Comptroller of the Currency Thomas Curry.
“Under certain circumstances, the interest rate on HAMP loan modifications will reset after five years and the interest rate will begin to rise by 1% per year until it reaches a cap. So it’s especially important for homeowners with HAMP loan modifications to have access to counseling assistance to plan ahead for that eventuality,” Curry said at a National Asian American Coalition conference in San Diego.
The national bank supervisor noted that NAAC has a program that provides longer-term counseling.
“Recently adopted HAMP guidelines recognize the value of post-modification counseling, and require servicers to offer budget and debt management counseling for certain borrowers during the initial trial period and once a permanent modification is in place,” the comptroller said Friday.
An independent study by the Urban Institute found that troubled borrowers who receive counseling were twice as likely to secure a loan modification than others who did not receive counseling. They also received more favorable terms and lowered their monthly payments by $176 on average. In addition, counseled clients were 67% more likely to be current on their payments nine months after a modification.
“These metrics stand as critical proof of the value of the services that housing counselors provide,” Curry said.
He also noted that banks can receive Community Reinvestment Act consideration for offering counseling to help low- and moderate-income homeowners avoid foreclosure.