Foreclosures—Let's Talk about the Solution: Counseling at All Levels Works
Foreclosures are big news. Data seemingly comes out daily quantifying the problem nationally, regionally and locally, but rarely do we discuss solutions to this industry, community and family issue.
While the financial industry may differ on the effects of the current wave of foreclosures, the fact remains that foreclosures are costly to the mortgage industry-as well as to city governments, neighborhoods and families facing foreclosure.
One significant solution is offering counseling, both by phone and face-to-face, to customers. The Homeownership Preservation Foundation (HPF), a Minneapolis-based national nonprofit dedicated to preserving homeownership and preventing home foreclosures, has joined forces with NeighborWorks America to expand their efforts in reaching homeowners as early as possible to prevent them from reaching the point of foreclosure.
The partnership links HPF's 1-888-995-HOPE toll-free hotline, which offers free foreclosure prevention counseling and advice, with NeighborWorks' national network of organizations that provide face-to-face homeownership education and counseling services.
The Telephone Counseling Experiment
HPF opened its doors in 2004 with a $20 million seed grant from GMAC-RFC (now part of Residential Capital Corp.). The nonprofit was established to help reduce foreclosures and preserve home ownership for families in crisis. The hotline is staffed by trained foreclosure counselors working for one of four HUD-approved regional counseling agencies. The call and the counseling, which begins immediately any time, day or night, are offered free of charge to any homeowner in the United States.
In 2006, more than 25,000 homeowners in distress from all 50 states called the HOPE hotline—a 600 percent increase from 2005. Three of four calls to the hotline in 2006 were from people with an average income less than $50,000. By the fourth quarter of 2006, nearly 50 percent of all callers completed a full counseling session ending in a solution or referral.
The first call can take anywhere from 30 to 60 minutes. The counselor and the caller discuss the homeowner's budget, financial situation and mortgage status in depth. The counselor works on a solution between the homeowner and the servicer that often keeps the homeowner in their home, helps them avoid foreclosure and allows the servicer to move the loan to performing status.
Many of the nation's largest servicers, such as Countrywide, Chase and Citigroup, have given the foundation's counselors direct telephone access to one or more loss mitigation specialists. Together, the servicer, the counselor and the homeowner can usually draw up a plan to bring the mortgage up to date, while keeping the homeowner in their home. If staying in the home is not possible, the counselor can offer options such as auctioning or selling the home.
In the event that this comprehensive counseling session cannot resolve the issues, the HPF counselor then transfers the client to the local NeighborWorks organization, such as Beyond Housing in St. Louis. The counseling staff at Beyond Housing receives detailed case notes regarding the individual situation. A face-to-face meeting is scheduled quickly to clearly understand the issues facing the family.
After loan documents and income/expense information are gathered, it is determined whether the underlying problem has been or can be rectified. Often a three-way conversation with the homeowner, counselor and servicer occurs to find a solution to the problem. Funds may be available to help the family bring their loan payments current as a condition of the solution.
Getting the Phone To Ring
Homeowners facing foreclosure are embarrassed about their situation, with 50 percent too embarrassed or unwilling to contact their servicer about their problem. Therefore, the experiment required a diversified marketing program to speak to troubled borrowers and ensure they knew the hotline was available.
Referrals come through nonprofit partners, which include NeighborWorks America, the National Urban League and USA Cares. In addition, several cities and states refer residents facing foreclosure to the hotline, either directly or through their 311 nonemergency call centers.
At the local level, the hotline is promoted through grassroots meetings, radio and television interviews, paid advertisements, and local-access cable programs. An initial review of call volume reflects a direct correlation between local promotion and number of calls to the HOPE hotline. A foreclosure prevention advertising campaign is an exciting new effort by NeighborWorks in partnership with the Ad Council to reach struggling homeowners. The campaign directs struggling borrowers to call 1-888-995-HOPE.
But Does it Work?
The 1-888-995-HOPE number receives 3,000 calls a month. Moreover, call volume is increasing by 20 percent to 25 percent every month, which in turn means an increase in call volume at the local level. HPF has found that more than 75 percent of those who engage in counseling ultimately avoid a foreclosure sale—some through loan modifications and others through mechanisms like deed in lieu of foreclosure. But this is still only a small fraction of those in need.
Servicers also find they can only reach a limited number of their customers who face losing their homes. Numerous reports suggest that more than half of homeowners are afraid to contact their servicer for fear of losing their home sooner, and direct mail has limited success rates. Clearly, alternatives for making contact must be explored. The HPF/NeighborWorks experiment begs the questions: Does counseling really save a homeowner from foreclosure? And if so, what is the most effective type of counseling-telephone or in person?
J. Michael Collins of Policy-Lab Consulting Group, LLC, has researched these questions and made some interesting discoveries. "The question of face-to-face vs. telephone counseling is moot," Collins said. "Both have a place."
In-person counseling does tend to keep homeowners more engaged—they are truly a captive audience, without the distractions that can plague telephone callers. Nevertheless, focus groups with homeowners suggest some borrowers favor telephone counseling.
"Telephone counseling offers more flexibility for working families," Collins said. "Some find it impossible to attend a face-to-face session. Phone counseling fits easily within busy lifestyles, making it sometimes a better alternative."
The most important factor in counseling is not the method, but the time a homeowner spends actively engaged in the process.
"Our research shows that the longer the time spent in active counseling, the lower the chance the homeowner will lose their home to foreclosure," Collins said.
The emphasis of our collective dialogue needs to shift from affirming the problem of foreclosures to promoting the solutions. Counseling does work. We must compel families in trouble to reach out for help by calling their lender or servicer or by calling 1-888-995-HOPE.