Data Confirm Counseling Almost Doubles Foreclosure Cure Odds

Even when it is obvious that a specific business strategy makes perfect logical sense, it becomes far more convincing when data confirm its value as well.

The National Foreclosure Mitigation Counseling program is one case in point. For homeowners who work with an NFMC counselor, “the odds of curing a foreclosure” are 1.7 times higher than for homeowners who do not.

Moreover—according to NeighborWorks America, the Congressional-appointed NFMC program administrator that analyzed the NFMC program performance based on foreclosure loan data from January 2008 through December 2009—the redefault rate improved.

The NFMC report estimates that typically 64% of homeowners who received a default-curing mortgage modification after receiving counseling remained out of serious delinquency or foreclosure after eight months, compared to 51% without NFMC program counseling services.

These homeowners who received a modification through NFMC also save an average of $555 in monthly payments, compared to $288 for homeowners who did not work with an NFMC program counselor. NeighborWorks reports that thanks to the National Foreclosure Mitigation Counseling program homeowners can save over $6,000 annually.

NeighborWorks CEO Ken Wade praised the report for showing the value of counseling and the real “household and economic benefit foreclosure counseling can have for families facing foreclosure,” since NFMC program funding enabled “families who sought and received foreclosure counseling” find a solution to foreclosure that ultimately helps sustain economic stability at the personal, neighborhood and national level.

Conducted by the Urban Institute for NeighborWorks America, the report also found “the likelihood of curing a foreclosure was better when an NFMC program counselor was involved, even if the homeowner had been in foreclosure for many months.”

Data indicate there are long-term benefits. An estimated 55% of the typical NFMC program clients whose loans entered foreclosure, would cure their loan within 12 months from when the foreclosure started, compared to only 38% of those who did not receive such counseling.

The probability for a sustained cure increases significantly. A typical loan for which the homeowner was in foreclosure and receiving counseling had a 6.6% probability of curing, compared to a probability of about 4% for owners who are not counseled.

Analysts note, however, that “these probabilities only reflect the likelihood of curing within one month” to determine the cumulative effect of counseling for a given cohort of loans in foreclosure,” compared to the cumulative cure rate when assuming that the same cohort of owners did not enter counseling at any point.

The difference in the monthly probability of a foreclosure cure for an NFMC loan, when compared to a non-NFMC loan by the end of a six-month period, which is the typical time it takes to enter in a foreclosure process, 33% of counseled owners in foreclosure proceedings would cure it, compared to 21% of non-NFMC owners.

Over a 12-month period, the share of foreclosures cured would increase to 55% for typical NFMC-counseled loans and 38% for noncounseled loans—showing that it takes time to open and successfully continue a dialogue with distressed borrowers.

In other words, counseling efficiency valuations are tricky and take time to translate into “larger cumulative differences” that become more obvious over time.

There is a difference of 12 percentage points between the predicted share of loans that would cure a foreclosure with counseling and the share without counseling. 

Analysts estimate that “for a typical foreclosure spell of six months,” NFMC counseling increased the number of clients whose foreclosed loan cured by about 32,000.

The assumption here is that, instead of the actual 46% of loans that were in foreclosure and had a cure by the end of December 2009, only 40% of these loans would have cured-resulting in an estimated 32,000 more NFMC clients cured because they received counseling.

And the positive effect “was about the same regardless of the level of treatment received by a client.” Whether borrowers received one or all three counseling levels available--their odds of curing a foreclosure in any given month were 1.6 to 1.8 times greater than those who did not receive counseling.

Level one counseling that involves only an initial session with the client but no follow-up is statistically less significant compared to the effect of Level 2 and Level 3 counseling where counselors provide additional assistance indicating, “more intensive services result in better outcomes.”

The number of hours spent counseling the client also does not appear to significantly impact, either positively or negatively, the likelihood of a foreclosure cure.

Another factor that has helped is “the overall quality of all modifications” provided following the Home Affordable Mortgage Program standards.

Furthermore, the study found that new HAMP benchmarks for loan modifications are benefiting all borrowers whether or not they receive an actual HAMP modification by creating constructive competition. Data show the median payment reduction for loan modifications in 2008 before HAMP started in April 2009 was $225, compared to a median payment reduction of $337 in 2009.

So far Congress has appropriated $475 million to the NFMC program that is operated through over 1,700 counseling agencies nationwide.