In 2005, Freddie Mac launched a program to help delinquent borrowers understand their options, obtain counseling, and get back on-track to help prevent even more financial trouble in their lives. The program was a resounding success, estimated to provide a return of over 1000% in benefits for Freddie Mac and taxpayers as a whole.
While publicly acknowledged as something of an experiment, Freddie Mac is now using the lessons of these programs to deal with a new issue: homeowners facing changing interest rates on loans made through the Home Affordable Modification Program.
There are two major goals of this outreach:
1) Explain Delinquency Counseling to the Public
In a 2005 survey, Freddie Mac found that only 38% of homeowners knew that counseling was available – but about twice as many would be willing to take advantage of it if it was available for them.
Accordingly, the first goal is to make it clear to homeowners that options are available, and have a realistic possibility of resulting in the reinstatement of a loan, a modification to an existing loan, or some other result where the homeowner and their lender are able to work things out.
2) Motivate The Public To Contact Their Servicer
However, informing homeowners of their options was not considered enough. The second major goal is encouraging them to actually contact their servicer and begin the process of negotiations. In the same survey mentioned above, 28% of homeowners believed there was no reason to talk to their servicer, and that even if they did, they could not get any help.
Explaining the differences and motivating people to talk with their servicer was enough to help prevent over 350,000 foreclosures during the initial campaign.
How are Homeowners being contacted?
Under this program, homeowners are actively being contacted by credit counseling services (carefully selected and vetted to ensure they meet the program’s needs), with the names and contact information of delinquent borrowers provided by Freddie Mac. In particular, the emphasis is on borrowers with new loan modifications – or those seeking new loan modifications – to help them understand the changes and create a budget that works for their needs.
In many cases, homeowners even received lifestyle counseling, helping them achieve greater success over a longer period of time. With more money, less debt, and renewed confidence among homeowners, it has become much easier to contact them and return their mortgage to good standing.
Freddie Mac attributes the lowest rates of delinquency in 7 years to the success of this contact method, and plans to continue applying the lessons it’s learned to other areas and issues. As it turns out, actively engaging homeowners and talking to them about their options is more effective at resolving problems than passively waiting for them to talk all on their own – a lesson that may have taken time to learn, but is now being put to good use.
For more mortgage industry news and trends stay tuned to DaveKevelighan.com.
