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Hope Now Servicers Still Looking for Counseling Fee Solution

Delinquent homeowners continue to tune out their mortgage servicers while banks struggle with mortgage counseling compensation issues.

During the first half of this year a staggering 5.5 million homeowners 60 days or more delinquent had never contacted their bank prompting servicers to send out over 5.5 million Hope Now letters designed to help minimize foreclosure risk.

Hope Now data indicate counseling availability, the quality of the message delivered coupled with the high stress level of an economy in crisis are some of the reasons getting into the way of a faster housing market recovery.

The alliance—which includes 15 mortgage servicers who represent over 80% of all loans serviced in the United States—is now advocating a “Fee for Service” model for housing counselors. The challenge is in finding ways to make counseling so efficient it can maximize the effect of both federal and non-federal funds designated for free counseling.

Faith Schwartz, Hope Now’s executive director, told this publication the alliance has worked on this issue with the industry, the government and nonprofits for four years achieving some progress with the Homeowners Hope Now 24/7 free counseling hotline. But even though “the GSE’s and ASF have offered guidance to reimburse the hotline,” she said “broader progress” is needed to ensure all counselors who are qualified to offer quality services are engaged and properly compensated. As government funding is at risk due to a 2011 budget cut, debt-ceiling issues and pending 2012 budget, the issue of compensation for free counseling service “is real and has consequences to the nonprofits on the ground.”

Currently many institutions have private contracts with some counselors. “The GSEs and others have some guidance where additional loss mitigation fees may be used to reimburse some of this [counseling],” she said. As of now Hope Now does not have “a comprehensive solution around the fee for service,” so it remains an important issue on its agenda for a meeting in early September. “Many different stakeholders are looking at this.”

The $540 million appropriated by Congress for the National Foreclosure Mitigation Counseling Program in December 2007 was distributed to 1,700 competitively selected counseling agencies through NeighborWorks America to fund legal assistance to homeowners and to train foreclosure counselors. While it has assisted many homeowners at risk of foreclosure, she said. “There is more work to be done here and there needs to be alignment on what a fee for service model can look like more broadly.”

Early on in the program Hope Now letters had an 18% to 20% response rate from borrowers who had not responded to the banks or the typical outreach. What is new in engaging the customer differently to further increase the response rate is the one point of contact “whatever that model looks like” for a particular provider since it can be one person or one team.

In June the Department of Treasury reported that findings from its servicer assessments that summarized the performance of the 10 largest servicers participating in the HAMP program, four (Bank of America, JPMorgan Chase Bank, Ocwen Loan Servicing, Wells Fargo) needed “substantial improvement” and the other six needed “moderate improvement” in four categories of the program implementation that include “identifying and contacting homeowners” at risk of foreclosure.

Data also show that these aforementioned megabanks have in the recent past and continue to spend millions of dollars on financial education and counseling initiatives especially before the loan becomes 90 days or more delinquent.

Since January 2011 servicers accomplished 558, 000 permanent loan modifications. Only 183,421 were completed under the HAMP program, the remaining 375,000 were proprietary modifications of which 80% are currently performing or less than 90 days past due.

Since loans 90 days past due go into technical default and are at high risk of foreclosure the alliance changed the metric excluding the 30- or 60-day late loans when rating loan modifications. Compared to earlier delinquencies “there is less cure” for loans over 90 days delinquent and foreclosure notices soon follow, Schwartz says.

The alliance sees a slowdown in the overall rate of serious delinquencies that may have a chance to be cured if servicers establish an effective communication with so called noncontact borrowers who do not engage unless and until someone shows up at their door. But as everyone in the industry knows doorknockers are the very best, and the most expensive foreclosure prevention approach.

Schwartz says there is “room to improve” the ongoing HAMP and non-HAMP borrower outreach and ways how to communicate with homeowners who are experiencing high stress. Both the industry and the government can “improve on overall messages” for homeowners at risk since foreclosure prevention processes are such as forbearance, hardest-hit funds, HAMP, proprietary modifications, short sales, deed-in-lieu and cash for keys are filled with technical details that are “difficult to message” in a clear simple language that would help these borrowers benefit from their window of opportunity.

At least in theory another 5.5 million properties may go into foreclosure unless the mortgage servicers find a way to establish an effective communication with these homeowners.

The voluntary alliance of mortgage servicers, investors, counselors and other mortgage market participants created in 2007 to help reduce foreclosures, reports that during the first half of this year nine events held in eight cities provided face-to-face counseling to over 8,000 families. According to Schwartz, the alliance is also looking into testing behavioral economics and approaches that take into consideration how people handle stress in times of crisis.

Hope Now does not have data on funds used by banks for counseling and to advertise educational events and services including the Hope Now toll-free line and website, but “the number is high,” she says. “It’s millions.”

Even so millions of borrowers are not getting the message. In states like Florida, one of the hardest hit by the foreclosure crisis, according to Schwartz, even in the recent months “we’ve still seen between 30% to 40% of the borrowers had never been meaningfully in contact with their servicers,” she said.

“Don’t you think at this point you would have very few of those borrowers?”