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Partnerships Help Borrowers Cope with Hard Times

With current hard economic times and Americans continuing to pile on debt, many in the mortgage industry are starting to take stronger pre-emptive measures against possible defaults on their loans by reaching borrowers as early as possible in the delinquency phase - under 30 days - and referring them to counseling.

Also a growing trend now emerging among mortgage lenders and servicers is creating direct partnerships with counseling agencies to which they refer their borrowers, and in certain partnerships, pay for the expense of having counseling for their borrowers.

Most notably, many in the mortgage industry are looking to member agencies of the National Foundation for Credit Counseling, Silver Springs, Md., for creating such partnerships. The NFCC is a national nonprofit credit counseling network.

Fairbanks Capital Corp., a Salt Lake City-based financial services company engaged in the servicing and special servicing of single-family residential mortgage loans, is among the most recent companies to enter into a direct partnership with a member agency of NFCC.

Fairbanks is partnering with the Consumer Credit Counseling Service of San Francisco in a relationship where it will refer its borrowers who start to shows patterns of having difficulties in making their mortgage payments.

The PMI Group Inc., Walnut Creek, Calif., which holds a majority interest in Fairbanks, will support the Fairbanks- CCCS of San Francisco agreement with a two-year, $100,000 grant to the counseling agency to cover start-up costs of the partnership and other expenses.

The start-up costs will include "hiring additional counselors and systems setup. Then, CCCS will charge Fairbanks for borrower counseling on an ongoing basis," said Taia Lockhart, director of emerging markets at PMI.

Bill Garland, president of Fairbanks, said for borrowers who are experiencing difficulties in making their payments and are "amenable to getting some counseling from CCCS, Fairbanks will be able to transfer those calls to people in their organization to provide counseling which will go beyond the obvious mortgage debt.

"The expectation is that the borrowers have other debt that they need counseling for. I think that we recognize that the amount of debt to disposable income of people has increased in the last year and continues to rise.

"We are taking a broader view of the financial capability of the folks that we are servicing. We want to be very proactive in making sure the borrowers understand their alternatives short of filing for bankruptcy which has been on the rise."

Under the agreement, Fairbanks will refer homeowners with delinquent loans to CCCS of San Francisco's Housing Education Program for financial counseling including a financial assessment, debt and income analysis, budgeting and payment plans.

Rick Harper, vice president of program services at CCCS of San Francisco, said, "We request the borrower to complete a worksheet which lists the family's budget information, their debts and income, and how they spend their money. We give them suggestions on how they might save money or improve their family budget."

In situations where budgeting is done and clients still can't make their mortgage payments, the agency, with the permission of clients, can make recommendations to servicers with regard to loss mitigation options.

With the Fairbanks-CCCS of San Francisco agreement, if payment plans are devised for borrowers to become current on their loans, the borrowers themselves would be responsible for making the payments directly to the servicer.

Alternatively, in the relationship between American Business Financial Services, Bala Cynwyd, Pa., and the Consumer Credit Counseling Service of Delaware Valley Inc., borrowers of ABFI's operating subsidiaries enrolled in the agency's Debt Management Plan would make their loan payment to the agency, which would then forward the payments to the appropriate servicing parties.

As part of the agreement, ABFI will pay a set-up fee and monthly contributions for eligible home equity borrowers who are having difficulty keeping up with their monthly payments, and who voluntarily enroll in the agency's Debt Management Plan.

While enrolled in the program, borrowers must keep their mortgage payments current with the company's operating subsidiaries for ABFI to continue to pay for the cost of the Debt Management Plan.

Jeff Ruben, an executive vice president with ABFI, said, "With this program being fairly new to us, we have been experimenting with different stages of delinquencies to contact borrowers and what we have learned is that it actually benefits the borrower more if we can get them to counseling earlier in the delinquency stages, rather than later.

"So we have actually tried to even refer people to counseling prior to 30 days delinquent, when we start sensing that payments are slowing and there are problems on the horizon. We try and look for patterns."

Debbie Cooper, vice president of counseling, education and training at CCCS of Delaware Valley, added, "The relationship is not necessarily just to enroll borrowers into the Debt Management Plan, but also for the one-on-one budget counseling. Also, we trained all of their collectors to refer clients to us because we might be able to help them with housing delinquency."

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