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November 09, 2015

A Better Way to Reach Homeowners

Lisa Cookson
Lisa Cookson, VP Single-Family Customer and Operational Services

Ten years ago, Freddie Mac began an aggressive experiment to reach delinquent homeowners who were not responding to loan servicer efforts to work with them. The results exceeded our expectations and prevented 350,000 additional foreclosures from happening.

Now we're using the results of these experiments to prepare thousands of homeowners for scheduled interest rate increases on mortgages modified under the Home Affordable Mortgage Program (HAMP®)

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. They then use their expertise to contact, engage, and prepare the homeowner for the scheduled interest rate increase.

The two agencies are also providing counseling for homeowners who have received a new loan modification to ensure they understand the new loan terms and prepare them to succeed with the new payment.

This is the playbook Freddie Mac, CCCS of San Francisco, and ClearPoint worked on in 2005 to engage delinquent borrowers who weren't responding to servicer efforts to help them.

The impetus to work together was triggered by research showing just how many non-responsive delinquent borrowers there were.

A 2005 survey conducted by Freddie Mac and GFK-Roper found 31 percent of the delinquent homeowners surveyed had not contacted their lender. Twenty-eight percent of the homeowners surveyed also said there was no reason to talk to their servicers and didn't believe their servicers could help them.

At the same time, a very high percentage of delinquent homeowners (74 percent) said they would be willing to talk to a housing counseling agency.  Yet only 38 percent of the homeowners surveyed were aware counseling was available.

That same year we joined forces with CCCS of San Francisco and ClearPoint and launched a series of efforts to 1) inform the public about the benefits of delinquency counseling, and 2) to motivate those homeowners who wouldn't call their servicer to talk to one of these two agencies. (In 2013, we added a third agency, the Home Preservation Foundation.)

We gave the counseling agencies contact lists of delinquent homeowners who had stopped talking to their servicers.  The agencies then experimented with different methods to engage the homeowners, win their confidence, counsel them, and put them back in touch with their servicer. The servicer could then help the homeowner reinstate their loan or determine their eligibility for a loan modification or other workout option, if necessary.

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. 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.

This approach has consistently beaten our expectations for contact rates and foreclosure avoidance. Since it began ten years ago, half a million delinquent homeowners have responded. Of these, 350,000 have avoided foreclosure.

It's also proven to be a very cost-effective approach. We estimate that for every dollar we spent, Freddie Mac and taxpayers received $10 or more in benefits.

Today's delinquency rates are at their lowest levels in seven years. But this is no time to put aggressive delinquency outreach and counseling on the back burner. Instead, it's time to adapt the borrower outreach experiments we began with CCCS of San Francisco and ClearPoint ten years ago to do better business in today's market. We can – and are – applying them to new challenges, like preparing HAMP borrowers for scheduled interest rate increases.

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