From MainSt 10/21/14
Homeowners can save thousands of dollars when they work with counselor to get their mortgages modified and decrease their odds of defaulting again.
A new study for NeighborWorks America by the Urban Institute determined that homeowners were able to avoid spending millions of dollars annually because of the National Foreclosure Mitigation Counseling (NFMC) program. Homeowners working with NFMC program counselors are nearly three times more likely to obtain a mortgage modification and are nearly twice as likely to get their mortgage back on track without a modification.
After working with counselors, homeowners are 60% less likely to re-default after curing a serious delinquency and able to complete short sales faster than homeowners who don’t work with counselors.
The research is based on analysis of nearly 240,000 homeowners with outcomes observed through June 2013. More than 1.8 million homeowners have been helped by the NFMC program, administered by NeighborWorks America since it began in March 2008.
“Whether measured by benefits to homeowners through more likely mortgage modifications, sustainability of those modification or mortgage cures, the research answers all housing counseling benefit questions with a resounding ‘yes,’” said acting CEO Chuck Wehrwein of NeighborWorks America, the Washington, D.C.-based trainer of community development and affordable housing professionals.
The research shows that homeowners were able to cure delinquent mortgages more frequently with the assistance of an NFMC counselor than owners who do not receive such help. Servicers also likely saved lost revenues by having performing loans back on their balance sheets.
“The bottom line for the servicing industry is that housing counseling saves them time and money,” he said. “Servicers that increase their partnership with NFMC program counselors are benefiting their shareholders and mortgage customers.”
Once a homeowner is 45 days delinquent on his mortgage, it is a warning sign that he is headed for serious problems and is at a higher risk of foreclosure, said Matt Ribe, director of legislative affairs for the National Foundation for Credit Counseling (NFCC) based in Washington, D.C.
“It depends on your servicer, but I recommend working with counselor to get as current on your mortgage payment as soon as possible,” he said.
Now that the backlog of cases from the recession has subsided, mortgage servicing companies are catching up on their older cases. Being delinquent on your mortgage for one to two years is no longer a realistic expectation, Ribe said.
Working with the servicer as much as possible will help resolve the issue better.
“Homeowners mistakenly believe that nothing good can come from it,” he said.
While the process can be intimidating due to the enormous amount of paperwork involved, a counselor can help homeowners understand fill out and submit the necessary forms throughout the process, Ribe said.
“The counselor works with these issues on a regular basis, so they can walk you through the process and understand the legal language and requirements,” he said. “They can put all the information into context.”
One option is for homeowners to use the Home Affordable Modification Program (HAMP), a government program which can extend a mortgage to 40 years from the date of the modification and the interest rate will be lowered. It is designed for a homeowner in crisis to lower payments as soon possible while keeping the loan positively amortizing, Ribe said.
“The hope is that after a certain period of time, the program will help the homeowner increase their cash flow, decrease other debt and think about refinancing their mortgage into a lower rate,” he said.
HAMP accepts homeowners based on their current debt to income ratio and sets up a plan to extend the term of the loan and to reduce the amount of the payment.
Homeowners can also reach out to their mortgage servicer or lender, who also has their own loan modification programs.
One critical measurement of all the programs is how to determine the current value of the home especially if the value has declined and the owner owes on the mortgage than the home is worth, known as being underwater.
Short sales are still a good option for homeowners who are not able to secure a principal reduction in the mortgage and still owe more than the house is worth.
“This can be a powerful option for people if they can find a buyer willing to take the house,” Ribe said. “It sort of lets them start over.”
Working with a counselor can give owners more options and achieve the most “affordable and sustainable option as possible,” and helps reduce the number of people who defaulted again, he said.
“I would recommend that before they make any decision, they should work with a HUD certified housing counselor to discuss their options and the implications,” Ribe said. All NFCC counselors are certified financial counselors and work with people regardless of their ability of pay.
Since buying a home is something that most people only do once or twice in their lives, there is no question that homeowners whose mortgages are in default or at risk of default should look for assistance as soon as possible, said David Reiss, professor of law at Brooklyn Law School in New York.
“Losing their home is something that most never do at all, so to think that going it alone is the best strategy is a mistake,” he said. “Foreclosure counselors know the range of options available to borrowers and may have access to more direct lines of communication with lenders. They also will have a better sense of when to complain to regulators about bad behavior by lenders.”