Higher Savings Rate Shows Added Appreciation for Counseling
Everyone in the industry is well aware of risks associated with higher delinquencies, foreclosures and growing inventories of real estate-owned properties. And nobody knows how much longer the market will keep servicers on their toes trying to use borrower counseling as a foreclosure prevention tool.
Freddie Mac recently joined forces with 13 national and local nonprofits participating in a pilot effort "to convince discouraged delinquent [Freddie] borrowers to pursue mortgage workouts" and ultimately assist them avoid foreclosure. The effort is based on the belief that fear and frustration are keeping thousands of eligible borrowers from getting help and receiving a loan modification, Freddie's CEO Ed Haldeman said. Participating nonprofits can make a difference, he said since they are "trusted and valued sources in their communities." Freddie also quoted Neighborworks data showing that compared to other borrowers, those who already are in some stage of foreclosure are 60% more likely to keep their homes, as an additional reason behind the initiative.
Freddie's Borrower Help Centers in Chicago, Phoenix, San Bernardino, Calif., and Washington will offer free, one-on-one "holistic" counseling to delinquent homeowners. Freddie's national phone-based Borrower Help Network offers counseling that includes feedback on mortgage issues, assessment of debt, credit profiles, and a borrower's ability to stay current after receiving a modification.
Apparently there has been a positive side to the crisis. In 2009 many Americans faced unemployment, limited credit options and higher debt repayment delinquencies, but at the same time statistics show that consumers saved more than ever. The personal savings rate was at 6.4% in May, the highest since 1993, according to the Department of Commerce's Bureau of Economic Analysis. Awareness should bring along more appreciation for counseling creating an opportunity to build more effective borrower-servicer relationships. One easy way to do that is by e-mailing practical guidelines and tips offered by debt relief service provider s like CareOne Services, Columbia, Md. Many have been able to save because they have been practicing frugality, says EVP Jenny Realo.
"However, being frugal isn't enough to get financially on track in the new year. Consumers need to also pay down debt sooner and begin building an emergency savings cushion."
Nonprofit credit counseling agencies like the Consumer Credit Counseling Service of Greater Atlanta, which acts as a trustee in distributing the funds to creditors, is encouraging those struggling to both keep up with their mortgage payments and repay their credit card debt to set up a debt management plan.
The immediate benefit for people with large balances and high interest rates is in the favorable repayment terms offered by creditors responding to the economic and foreclosure crisis. If in 2008 DMP consumers were assigned interest rates ranging from 10% to 14%, by yearend 2009 these rates dropped to 6% to 10%, according to CCCS, and may drop again this year creating new opportunity for customers, including homeowners, who opt for a DMP to repay unsecured debt prompted by late payments that cause credit card interest rate increases to 28% or more.
CCCS' Rick Phillips suggests a wider use of these tools as a long-term strategy to get debts under control using a counselor as an intermediary that works with creditors. The average debt management plan is structured to repay debt in 36-60 months.