Freddie Mac is using the results of aggressive loss mitigation experiments the GSE conducted a decade ago in an attempt to ease the impact of scheduled rate increases for homeowners whose mortgages have been modified using the government’s Home Affordable Mortgage Program (HAMP).
In a commentary titled “A Better Way to Reach Homeowners,” Freddie Mac’s VP of Single-Family Customer and Operational Services Lisa Cookson lays out the Enterprise’s plan for assisting HAMP borrowers with loans backed by Freddie Mac that are near the end of their five-year term and may be facing payment shock as a result of rate increases.
“Specifically, we're giving lists of these HAMP and post-modification borrowers to Consumer Credit Counseling Services of San Francisco and ClearPoint Counseling Solutions, Inc. in Atlanta,” Cookson said. “They then use their expertise to contact, engage, and prepare the homeowner for the scheduled interest rate increase.” Those two agencies also give counseling to homeowners with new loan modifications and help them understand the terms of the new modification, and also assist them with preparing to be successful in making payments under the new terms.
Freddie Mac utilized CCCS of San Francisco and ClearPoint back in 2005 in order to engage delinquent borrowers who were unresponsive to servicers’ loss mitigation efforts. As a result, Freddie Mac prevented 350,000 additional foreclosures, which exceeded the Enterprise’s expectations.
The aggressive outreach efforts by Freddie Mac to delinquent borrowers 10 years ago came about as the result of research that showed just how unresponsive delinquent borrowers were, Cookson said. The research found that 31 percent of borrowers had not talked to their servicer/lender, 28 percent did not believe their servicer could help them, yet 74 percent (nearly three-quarters) said they would talk to a housing counseling agency, yet 38 percent of the homeowners who were surveyed did not know that counseling was available to them.
In response to that research, Freddie Mac joined with CCCS of San Francisco and ClearPoint to launch a campaign with two objectives: Inform the homeowners about the benefits of housing counseling and motivate them to utilize the counseling that was available to them. Freddie Mac added a third agency, Home Preservation Foundation, to the outreach effort in 2013.
“Developing a financial budget that reduced overall debt and increased savings allowed many homeowners to return their mortgage to good standing and prepare for any future financial road bumps.”
Lisa Cookson, Freddie Mac
Freddie Mac provided the counseling agencies with a list of delinquent borrowers who were unresponsive to their servicers, and the agencies worked with those borrowers and encouraged them to contact their servicers to work out some type of loss mitigation.
“What's more, the counseling agencies provided a holistic counseling approach that went beyond income and expenses and also included lifestyle changes that could help homeowners succeed over the long term,” Cookson said. “Developing a financial budget that reduced overall debt and increased savings allowed many homeowners to return their mortgage to good standing and prepare for any future financial road bumps.”
Cookson said it has been a cost-effective approach for Freddie Mac—the Enterprise and taxpayers have received an estimated $10 in benefits for every $1 that has been spent. And just because serious delinquency rates on Freddie Mac loans are back down to their pre-recession levels, she said this is no time to let up on outreach to delinquency borrowers.
“Instead, it's time to adapt the borrower outreach experiments we began with CCCS of San Francisco and ClearPoint 10 years ago to do better business in today's market,” Cookson said. We can—and are—applying them to new challenges, like preparing HAMP borrowers for scheduled interest rate increases.”