Borrowers Still Choose Banks, Counselors Last
The prolonged recovery is simultaneously keeping up the demand for mortgage counseling and the foreclosure prevention assistance supply provided by the mortgage industry. What keeps coming up short in the exchange is borrower trust.
Neither the growing army of financial counselors affiliated with nonprofits across the country nor mortgage bankers come to mind first to homeowners who look for assistance, according to a recent study.
Who are the financial emergency first responders? Half of the distressed homeowners studied by Money Management International, Sugar Land, Texas, a credit-counseling nonprofit established in 1958 that provides face-to-face counseling alongside 24/7 telephone and Internet access, “would first seek help from family or friends.
Only 26% of the study participants would choose to go to their lender first. Merely 13% would rather seek assistance from a credit counseling service first “if they were struggling with mortgage payments.”
In other words, up to 74% of these homeowners continue to be distrustful of their mortgage bankers.
Another reason, according to MMI, is lack of know-how when in need of assistance, so the vicious circle of poor communication continues.
For those facing foreclosure or fear they may face it in the future, a single call to a HUD-certified housing counselor can help.
Various studies and recent findings by the Department of Housing and Urban Development have shown housing counseling is effective in helping homeowners in their homes. But the lender-borrower communication challenge appears to persist.
Prior to calling, make sure you know and/or have access to the following information, as the counselor will ask for these things in order to better assess your situation: Your monthly income; monthly expenses; debts and assets; and mortgage information, including servicer, payment amount, interest rate, amount of loan, date loan was acquired and your last contact with servicer.
A typical phone call that lasts about an hour allows borrowers to review the information, receive a counselor’s recommendation on options available, state specific foreclosure information, and ultimately a written copy of the action plan that will be used to prepare a recommendation for the lender/servicer. Conference calls with the lender and post-foreclosure counseling sessions also help borrowers who need to evict or make the transition from owner to renter of the property.
It appears that both counseling quality and the venue offering it play a role in the success of such endeavors.
Starting with the loan origination and refinancing costs most borrowers find it difficult to understand the mortgage process.
Since the number of people accessing financial information online continues to grow, says Rick Allen of MortgageMarvel.com, providing tools borrowers can use to educate themselves about estimated costs is key. He finds the number of people inquiring for information and shopping for mortgage loans online has dramatically increased in the past few years. Most customers do not understand the mortgage fee structure leading to disputes with the lender or servicer, which sometimes are costly.
In a recent example (Freeman v. Quicken Loans) the Supreme Court decided against the borrowers and in favor of the lenders rejecting lawsuits filed in 2008 against Quicken Loans in Louisiana by three families who claimed they paid refinancing fees without receiving anything in return. The court ruled that the law governed only situations in which a settlement service charge is improperly split among providers.
Allen finds it becomes even harder for homeowners to understand all the fees charged in a mortgage loan where a third-party service provider is involved.
While counselors can be very helpful, those who prefer to inquire independently or shop online for mortgage offers can use online resources to compare the information they have not only about interest rates, but also how to get a good-faith estimate of closing costs up front and “watch out for excessive costs,” he said.
But if the borrower does not know that a credit check costs the lender about $30 and the lender takes advantage of that by charging $100 the lack of trust that follows is as big a problem as the overcharge itself.