REQUIRED READING: As funding from federal grants and private sources continues to recede, foreclosure counseling agencies are witnessing a greater demand for their services. The increased consumer interest should not be surprising: Noncurrent loan levels remain high, and participation in loss mitigation programs often requires borrowers to work with counselors approved by the Department of Housing and Urban Development.
Furthermore, data collected in 2008 and published late last year by NeighborWorks America indicate that the involvement of loan counselors actually improves a borrower's odds of receiving a loan modification, making the counseling option an appealing one for homeowners. NeighborWorks' report, which analyzed National Foreclosure Mitigation Counseling (NFMC) program activity between January and December 2008, concluded that NFMC clients who received foreclosure counseling were 60% more likely to avoid foreclosure than homeowners who did not seek counseling.
Taking the triage and document-collection capabilities of counselors a step further, Andrew Jakabovics, associate director for housing and economics with the Washington, D.C.-based Center for American Progress (CAP), has proposed that the Treasury Department broaden counselors' roles in the Home Affordable Modification Program (HAMP). He suggests that counselors be paid to perform the HAMP intake and directly offer trial modifications. Under his proposal, servicers would be allowed to challenge a modification during the 90-day trial period.
‘There is a basic set of objective criteria that qualify a borrower for HAMP,’ Jakabovics wrote in late November 2009. ‘It is, therefore, entirely irrelevant who is doing the calculation, as long as it is done correctly. There is no reason why counselors and other entities could not enter into agreements with Treasury to run the HAMP net-present-value calculation that determines if a borrower is eligible.’
The Obama administration, wanting to reverse the thus-far-disappointing HAMP results, has an interest in figuring out what types of levers exist to create greater compliance and throughput in terms of modifications, Jakabovics says.
‘It's not imminent that we're going to see that type of policy shift, but it's something that's certainly on [the administration's] radar screen at this point,’ he says. ‘The industry is not quite ready to go that far. Servicers are interested in getting a tighter relationship with counselors, because they see better outcomes when borrowers work with counselors.’
On top of these findings and proposals, tech providers, along with a recently launched Web portal pilot program from HOPE NOW, are making strides in closing the communication gap between servicers and counselors. Improving the dialogue between the parties only makes sense, says Jeffery Jaffee, vice president of consumer and community relations with Saxon Mortgage, a participant in the HOPE NOW pilot.
‘If we get better results by partnering with counselors, we should do more of that,’ he says. ‘Counselors are key to us, because they're an extra set of eyes and ears on the ground.’
Demand up, funding down
In the last two years, more than $400 million in federal funding has been appropriated for foreclosure counseling through the NFMC program. The funding came in four rounds. Rounds one and two, authorized through the FY 2008 Consolidated Appropriations Bill and the Housing and Economic Recovery Act of 2008, respectively, each totaled $180 million. The third round, appropriated to the NFMC program in March 2009, was slashed to $50 million. The fourth round, totaling about $65 million, was approved in December 2009, but grantees have not yet been announced.
The National Foundation for Credit Counseling (NFCC), whose 102 member agencies include the many branches of the Consumer Credit Counseling Service, was one of five agencies to receive the maximum grant award from the third round of NFMC funding – $3.5 million, or about one-fourth of the funding the NFCC received in earlier rounds.
‘We know that foreclosures and bankruptcies and delinquencies are not going to go away for at least two years,’ says Helene Raynaud, vice president of housing and grants with the NFCC. ‘But in the third round, we got 25 percent of the funding we got previously for the same amount of agencies and an increased number of counseling sessions.’
Last year, NFCC affiliates provided housing counseling to about 1 million clients, one-third of whom requested foreclosure intervention services specifically, Raynaud estimates.
While agencies are having to adjust to the funding cuts – figuring out how to do more with less – there is a silver lining, counselors say: Servicers and counselors are beginning to view each other more as allies and less as opponents.
‘On the positive side, it's no longer good cop/bad cop,’ says D. Corwyn Jackson, a foreclosure intervention consultant who trains counselors. ‘Counselors finally feel that the servicing industry has determined we are a partner for them.’
The improved relationship might be attributed, in part, to the fact that counselors help alleviate certain burdens on servicers. By collecting documents or crunching numbers to determine a borrower's eligibility for a specific program, counselors shoulder some of the responsibility that would otherwise fall on call centers and third-party providers. But, Jackson cautions, servicers should avoid treating counselors as glorified paper-pushers. Like Jakabovics, he supports a loss mitigation model that both compensates counselors and gives them more authority in the decisioning process.
‘The counselors are feeling that the negotiation component that they had as an advocate is being removed and is being replaced with more administrative work,’ Jackson says.
NFCC's Raynaud agrees that aspects of the servicer-counselor relationship have improved, namely the escalation procedures counselors use when they encounter problems. And though she disagrees with proposals for counselors to ultimately be decision-makers in the loss mitigation process – citing investor guidelines and servicers' fiduciary duties – she does suggest that servicers too often ignore counselors' input.
‘There should more mutual respect between the two worlds,’ Raynaud says, adding that if a counselor, having performed a detailed budget analysis for a borrower, feels strongly that a certain resolution would prove most sustainable, the servicer should at least consider the counselor's recommendation.
Saxon has strategic relationships with some counselors in which the company compensates the counselors for ‘specific, discrete services,’ Jaffee says.
‘There are issues around the [Fair Debt Collection Practices Act] and privacy issues,’ he says in regard to paying counselors for decision-making. ‘We're happy to compensate our counselors in order for them to be able to give the right advice and refer our clients to us and come up with solutions.’
The problems plaguing servicer-counselor interplay might sound familiar. Servicers say they do not also receive complete packages from counselors, while counselors say they are asked to submit the same materials over and over again.
‘I think counselors realize that loan servicers are as inundated with requests and process issues as we are; however, there's definitely a communication issue that hasn't gone away,’ Raynaud says.
This predicament has caused several tech providers, including Default Mitigation Management (DMM) and IndiSoft LLC, to create Web portals that help counselors identify and track the materials that servicers require.
‘It's a way of communicating back and forth – tracking what's going on, how long it takes to get each resolution and what the resolutions are,’ says DMM's president, Joseph Smith. The goal of such technology, he says, is to be able to bypass debates over lost documents and faxes.
‘It's a very frustrating communication process for counselors, and trying to get ahold of someone to talk to about it can be a very frustrating proposition, as well,’ he adds.
Late last year, HOPE NOW launched a pilot program centering on a similar portal, IndiSoft's HOPE LoanPort. The program was launched in collaboration with six national servicers and counseling agencies in nine markets. By the time HAMP was announced last February, HOPE NOW's technology committee already had plans for a multi-phase Web portal program. But because HAMP featured both government support and broad servicer participation, HOPE NOW and IndiSoft decided to tailor the pilot program to help, at least initially, with HAMP fulfillment.
‘HAMP really played a key role in directing what data elements and docs were needed,’ explains HOPE NOW's deputy executive director, Larry Gilmore. Most participating servicers have short-term and long-term plans for implementing the portal, he adds, noting that HOPE NOW's ‘conservative’ goal is to eventually have at least 100 counseling agencies and 10 servicers up and running on the system.
To operationalize the pilot program, Saxon set up a dedicated FTP site to ensure secure document transmission and trained its community outreach team – a pre-existing team that works with counselors – on taking in referrals and sending back status checks to counselors. (HOPE LoanPort participants must provide a status report for each case at least once every 10 days.)
As of early February, the number of applications that Saxon had received through the portal was small, at three. Sanjeev Dahiwdkar, president and CEO of IndiSoft, says that HOPE LoanPort had processed nearly 100 applications in total since the program was announced in December. At this point, the main objective is to learn about the process and its impact on servicers' business, rather than push through large volumes of files, Dahiwdkar and Gilmore say.
CAP's Jakabovics notes that resources such as Web portals may also be helpful in terms of identifying procedural bottlenecks.
‘I don't think having a portal necessarily gives [servicers] a pass – I think it makes it easier to figure out exactly what's going on internally,’ he says. ‘And if we still see wide disparities between servicers who use a portal and those who don't, it speaks to other problems, which may be differences in the portfolio or differences in workflow processes outside the technology platform.’