Loss-Mitigation Counseling Survey: 4th Quarter 2010
By Joe Joyce, Summer 2011 Intern
The foreclosure process can be daunting and overwhelming to many homeowners. Loss mitigation counseling creates a “safer” avenue for homeowners navigating the foreclosure process. Counselors are trained to educate and support homeowners during the foreclosure process by analyzing an individual’s financials and mortgage terms and by discussing possible alternatives to foreclosure, such as modifications. Additionally, counselors are a valuable conduit between the servicer and the homeowner, striving to facilitate communication between the parties in hopes of resolving a delinquency and avoiding a foreclosure judgment. To better understand the challenges facing borrowers, the Federal Reserve Bank of Cleveland developed a survey and sent it to housing counseling agencies throughout the 4th District, which comprises Ohio, western Pennsylvania, eastern Kentucky, and the panhandle of West Virginia. Administered in February 2011, the survey’s findings represent activity in the 4th quarter of 2010.
The survey is split into four sections. The first section gathers information about the homeowners seeking loss mitigation counseling from the responding agencies. The second section explores the reasons for mortgage delinquencies. The third section assesses the responding agencies’ relationships with servicers. Finally, the fourth section tallies the outcomes from the work of the 15 housing counseling agencies that responded. In other words, what types of loan resolutions were available through loss-mitigation counseling and agreed to by the servicers? The survey was distributed to 25 counseling agencies, and of the 15 that responded, eight are located in Ohio, six in Pennsylvania, and one in Kentucky. There were no agencies in West Virginia surveyed.
Profile of homeowners seeking loss-mitigation counseling from 15 agencies
Among the respondents’ clients, the demographic makeup of western Pennsylvania’s differed from the rest of the District. Their income as reported by the loss-mitigation counselors was split; half of the responding agencies indicated that the majority of clients were in the low -to moderate-income bracket, while the other half reported the majority of their clients were in the middle-income bracket (80-120% of median income). Additionally, the Pennsylvania agencies reported representation of all geographic locations, rural, suburban, and urban. In contrast eastern Kentucky and Ohio agencies responding to the survey reported a majority of their clients resided in urban areas and had incomes in the low- to moderate range.
Among respondents across the District, the majority indicated that demand for their counseling services had increased from the 3rd to the 4th quarter of 2010. Ohio had the largest average number of clients per month, 405, versus an average of 39 clients per month in eastern Kentucky. One agency in Cincinnati reported an average of 2,000 clients per month.
Reasons for Delinquencies and Defaults
The survey asked agencies to rank the top three reasons why borrowers were experiencing delinquencies in the 4th quarter of 2010. The most common reason reported for delinquency was a reduction or loss in income, followed by job loss. Agencies were then asked to indicate whether there had been any changes from the 3rd to the 4th quarter (“increased,” “decreased,” or “no change”) in their top three reasons for delinquency.
|Top 3 reasons for delinquency in 4th quarter of 2010|
|1. Reduced/lost income|
|2. Job loss|
A majority of the agencies (9 of 15) reported an increase in client delinquency due to job loss or a reduction in income from 3rd quarter 2010 to 4th quarter 2010. Six of the 15 agencies reported a decrease in their clients becoming delinquent due to a loan product or loan terms, while three of the 15 reported an increase in delinquencies for this reason. Western Pennsylvanian agencies also reported an increase in demand for loss-mitigation services due to increased debt and overspending.
Working with Servicers
A vital skill of loss-mitigation counselors is serving as an effective link between clients and their loan servicers. To better understand the challenges and barriers counselors face in working with servicers, we asked a series of questions regarding the working relationships with servicers. Of the 15 agencies that responded, 10 characterized the process as “extremely difficult” or “difficult.” The other five reported that the process was improving. Compared to the other states, Ohio loss mitigation agencies found it more difficult working with loan servicers; 7 of the 8 Ohio agencies that responded reported that the process was extremely difficult. All of the agencies in western Pennsylvania and eastern Kentucky (7) reported that process was improving.
When asked about barriers to obtaining a modification, a majority (10) of the reporting agencies indicated no change in the number of barriers in the 4th quarter when compared to the 3rd, while 3 agencies reported more barriers and 2 reported fewer. Of the 15 agencies, 5 ranked missing and lost paperwork as the greatest barrier for non-HAMP modifications and 5 ranked lengthy review times as the most common barrier. For modifications through HAMP, missing and lost paperwork was reported as the most common barrier for 11 of the 15 responding agencies.
Ohio agencies also indicated that major barriers included inexperienced servicer staff and prolonged short-term modification for HAMP loans, along with the inability to reach definitive decisions for non-HAMP modifications. The three most common barriers remained the same through the 3rd and 4th quarters of 2010.
|The most common barriers in working with servicers in the 4th quarter of 2010|
|1. Missing and lost paperwork||1. Missing and lost paperwork|
|2. Lengthy review times||2. Lengthy review times|
|3. Inconsistent and/or unclear information from servicer||3. Inconsistent and/or unclear information from servicer|
The final section reports on the types of loan resolutions, the process for obtaining resolutions, the programs utilized for resolutions, and the reasons for re-defaults on loans. The survey listed a number of loan resolutions, such as short-term HAMP modifications, permanent HAMP modifications, servicer loan modifications, in-house modification programs, forbearance agreements, loan refinancing, short sales, and deed-in-lieu. Of the 15 responding agencies, 14 indicated short-term HAMPs were one of the most common resolutions in the 4th quarter, followed by a permanent HAMP modification (13 out of 15 agencies). Six of the 15 responding agencies reported in-house modifications as their most common resolution. Another six agencies reported an increase in the number of in-house modifications as resolutions for their clients.
|Top 3 loan resolution workouts for the 4th quarter of 2010|
|1. Short-term HAMP modification|
|2. Permanent HAMP modification|
|3. In-house modification|
In terms of timing, one agency from Ohio reported this about the loan process: “The largest percentage of our foreclosure cases is pending with no solutions; in other words, we are waiting for an answer.” According to 10 of the housing counseling agencies, reaching a successful loan modification took an average of 120 to 240 days. The other four agencies that responded to this question reported it took an average of 60 to 120 days. Most of the agencies (9) reported no change from the 3rd quarter in the length of time it took to reach a successful modification.
Housing counselors utilize several programs at the state and federal levels designed to assist homeowners in reaching a resolution to a distressed loan. National programs include Fannie Mae’s Deed-for-lease program, Freddie Mac’s Owner-to-Renter program, Cash for Keys, and Home Affordable Foreclosure Alternatives Program (HAFA). Other programs, which vary by state, include court-sponsored mediations, Hardest Hit Funds, PHFA-HEMAP, Ohio Home Rescue, and Restoring Stability.
Clients referred to alternative programs had a successful outcome most of the time, according to the counseling agencies. Among the Ohio agencies that responded, alternative programs were used more often than other, traditional types of resolutions like loan modifications. Only one agency of the six respondents in western Pennsylvania used the Fannie Mae Deed-for-lease program.
Our survey elicited very limited data on re-defaults. Only one agency in Ohio and three in western Pennsylvania tracked their clients following a resolution. Of their clients that re-default, according to the agencies, job loss is the number one reason, followed by a reduction or loss in income.
Housing counseling agencies responding to the survey reported an increased demand for their services in the 4th quarter of 2010. Ohio respondents had a higher-than-average client base compared to the other states. Job loss and reduction in income were the leading reasons for delinquency according to the survey respondents. The majority of the agencies indicated that the bulk of their clients reside in the urban area, however western Pennsylvania and eastern Kentucky also had clients residing in the suburban and rural areas. The agencies experienced the same challenging barriers with servicers in the 4th quarter as they did in the 3rd quarter. Agencies cited lengthy review times, lost or missing paperwork, and inconsistent information from the servicers as the greatest barriers to resolving a foreclosure.
On the positive side, counselors had success in utilizing programs such as Hardest Hit Funds, Ohio Home Rescue, Restoring Stability, PHFA-HEMAP, and HAFA. The most common resolution in the 4th quarter of 2010 was a short-term HAMP loan. Homeowners in the 4th District that used loss mitigation counselors we surveyed in the 4th quarter of 2010 were typically individuals between the ages of 35 and 64 years, were in the low to moderate income bracket, and lived in an urban area. Federal, state and agency programs have been developed to provide possible resolutions. While loss mitigation counseling has given home owners facing foreclosure an avenue to resolve delinquent mortgage payments; as indicated by the survey responses, the process is lengthy and many barriers remain.