The New Era of Loss Mitigation
To put it bluntly, the housing market crash which began in 2007 turned everyone upside down - borrowers, lenders, investors, servicers - everyone. Lenders struggled with managing a surge in delinquencies in a declining market. Servicers struggled with a surge in active loss mitigation work, a decline in resources to address the problem, and new regulatory agency and stifling regulations enacted in response to the crisis. But at the center, homeowners faced the prospect of losing their homes under a system they had little control over and which they believed to be at best, extremely unfair; at worst, criminal. And no one has gone to jail for it.
In response, the Federal government proposed a number of loan modification programs designed to prevent foreclosure. Many lenders adopted similar proprietary loan modification programs to assist their troubled borrowers. All agreed that modifying loans and getting borrowers to re-perform was the best way to staunch the bleeding of housing crisis and was in everyone’s best interest.
However, eight years after the housing market crash and amid positive housing reports for 2015, millions of American homeowners are still in trouble and are in danger of losing their homes. According to RealtyTrac’s U.S. Home Equity & Underwater Report for the fourth quarter of 2014, over 7 million homeowners (13 percent) still have combined loan amounts exceeding their property’s worth by at least 25 percent. Nearly 4.5 million borrowers (8.3 percent) are delinquent or in foreclosure.
Last year, only 489,000 borrowers received loan modifications to keep them in their homes. This is a decrease of nearly 36% from 2013. With a surge of home equity lines of credit scheduled to reset in the coming year, even more delinquencies are likely.
For the non-performing note investor in a buy-and-modify investment strategy, there is often disconnect between the overly-regulated servicer that seeks to collect from the borrower, and the borrower who has lost hope and faith in the system. Too often, real and meaningful loan modification offers are ignored as a result of a servicer’s ineffective loss mitigation program and the borrower’s fear and mistrust. The solution at the institutional level, at least according to Hope Now (www.hopenow.com), an alliance between counselors, mortgage companies, investors, and other mortgage market participants, is mediation. HUD approved housing counselors and nonprofit consumer groups can be an important bridge to connect borrowers with their loan servicers and help them to understand one another.
But how can a borrower and servicer begin the dialogue if they are not even speaking to each other? Nothing puts more fear into the hearts of many homeowners than a notice in the mail from their mortgage servicer filled with language they don't understand. Upon receipt, most are paralyzed by fear not knowing which way to turn.
If that message of reconciliation is instead delivered by the nonprofit counselor directly, the borrower’s fear is mitigated and we can all move towards effective solutions that keep borrowers in their homes and the investor’s mortgage being paid.
By partnering with groups like ours, mortgage lenders and servicers can improve their outreach to struggling homeowners as well as prospective new homebuyers. We understand them and you, and can serve as an olive branch to mold long term relationships.