WASHINGTON — As servicers downsize their loss mitigation units, housing counselors are finding the companies' designated points of contact are less experienced, making it more difficult to get packages approved for troubled borrowers.
"Communication with servicers is a problem," said Nicole Harmon, vice president at the National Foreclosure Mitigation Counseling program. "We continue to find turnover is pretty high at the servicer's level, which builds frustration for the homeowners."
Harmon argued that the lack of experience is causing delays in processing and forcing homeowners to continually update their financial information.
"It is an ongoing challenge for counselors. Some points of contact are not even familiar with their company's loss mitigation options," said Harmon, who is also a vice president for foreclosure mitigation at NeighborWorks America, a federally funded network of community development organizations that also provides housing counseling.
Banking regulators require servicers to have points of contact that troubled borrowers can reach. But servicers have been reducing staff significantly as the number of foreclosures and modifications have fallen off over the past few years. Servicers completed 419,000 loan modifications in 2015, down almost 50% from 2012.
Eric Selk, the executive director of Hope Now, said most modification cases are approved or rejected in 30- to 60-days. But cases are more difficult and complex where the borrower has been delinquent for more than one year.
"Those are tough cases," Selk said. "It doesn't matter whether the borrower is working directly with the counselor or working directly with the servicer. It is just going to be more a complex situation to work through."
Treasury Department officials launched the Home Affordable Modification Program in July 2009 in response to the foreclosure crisis. It provided significant mortgage payment relief for delinquent borrowers by reducing the interest rate. Servicers completed 117,270 HAMP mods and 301,786 proprietary mods last year.
Eligible homeowners can still qualify for a HAMP mod. But the program is due to expire at yearend.
Treasury is currently working with industry groups, mortgage servicers and Fannie Mae and Freddie Mac on "leveraging the lessons learned on HAMP and how those requirements can live on," Harmon said.
HAMP improved servicing practices, "but connecting with the servicers remains a challenge," she said.
Bank regulators toughened servicing standards as part of a massive mortgage settlement agreement with the largest servicers, and the Consumer Financial Protection Bureau later codified many of those changes in its own rule, which applied to all servicers.
Some lingering issues from HAMP may be on the horizon, since the interest rate on those modifications resets after five years, which triggers annual increases in the homeowners' interest rate. Researchers at the Urban Institute Housing Financial Policy Center, however, contend that defaults as a result of these resets will be relatively low.
In a May 2014 report, Laurie Goodman, director of the center, and Jun Zhu, a senior researcher associate, forecast that the "first substantial defaults" on HAMP mods would occur in 2016, when the 2009 modifications experience their third reset."
The authors expect an increase of 10% in re-defaults in 2016 and nearly half of homeowners will qualify for a new modification, which will reduce defaults to 5% to 6%.
"They still believe the impact of expiring HAMP mods will be minor," an Urban Institute spokesman said Thursday.
