Holistic financial counseling â€" that which focuses on a borrower's entire financial situation â€" can prevent both foreclosures and re-defaults, according to a recent study sponsored by Florida-based special servicer, ""Outreach Financial Services."":http://www.outreachfs.com/
[IMAGE]Holistic financial counseling can save servicers up to $71.5 million in losses on a portfolio of 10,000 loans, according to the study conducted by the ""STRATMOR Group."":http://www.stratmorgroup.com/
According to the ""white paper"":http://www.outreachfs.com/investor/pdf/White-Paper.pdf released by STRATMOR Group, servicers evade losses of about $3,894 on an average $210,000 loan for each borrower who receives basic counseling. However, this figure increases to between $5,754 and $7,147 when borrowers receive holistic counseling aimed at their total debt and spending patterns.
When holistic counselors reivew a borrower's entire financial status â€" including mortgage debt, credit card debt, car payments, and discretionary spending â€" they are generally able to help borrowers diminish monthly spending by $200 to $300.
When this savings is added to a reduction in monthly mortgage payment â€" obtained through a loan modification â€" the savings can have a significant effect on re-default rates, according to the study.
Using a sample loan modification with a mortgage payment reduction of $550 per month, the added cash savings bring borrowers total savings of $750 to $850 per month.
This total savings will decrease the re-default rate from 41.5 percent to 25.5 percent with $750 in monthly savings or 18 percent with $850 in monthly savings.
""It is clear from the research that using a holistic financial counselling approach, with a focus on spending reduction, improved financial behaviors and adherence to a budget, can significantly reduce foreclosures,"" said Bill Magro, President and CEO of Outreach Financial Services.
According to Outreach Financial Services, the benefit-to-cost ratio for holistic counseling will reach or exceed 10:1
Outreach Financial Services partners with the ""National Foundation for Credit Counseling"":http://www.nfcc.org/ to provide holistic credit counseling to borrowers at risk of default.