Does Anybody Know If Credit or Foreclosure Counseling Helps?

The infusion of millions of dollars to pay "counselors" to forestall foreclosures on behalf of consumers who are delinquent on their mortgage payments seems as American as apple pie and should perhaps help some homeowners. These dollars are split among neighborhood non profits, specialized housing counseling organizations and a considerable amount has flowed to providers that have historically spent most of their time counseling consumers with credit card delinquencies. A group of United Way supported family and children service agencies also receive some of these funds.

Anecdotal reports indicate that the housing counselors are a cut above the historic credit card counselors. The credit card counseling industry agencies were mostly begun by creditors and their funding has always been supported by payments from creditors. The housing counseling organizations began with funds from HUD and the Ford Foundation and the extensive new dollars have come from the Federal government through a central organization called Neighbor Works. The neighborhood organizations obtain their funding all over the lot. The cultures of the various organizations differ a good deal among themselves and between the various types of providers.

Over the years there have been very few professional evaluations of the work these folks do and the evaluations that exist are subject to a great deal of criticism. For better and worse the inflow of new dollars has not spawned more professionally accepted evaluations. The good news is that the money keeps flowing, particularly into the housing and foreclosure sector; the bad news is that we have no idea whether some agencies could learn from others and very little idea of how well the “counselors” are doing their jobs and how much they are helping. This industry works with folks AFTER they are in financial trouble, but the “financial literacy” movement which  tries to help folks BEFORE they are in financial trouble is subject to the same lack of evaluation and even reflection. 

Perhaps, this void of effective evaluation is inevitable since we are not sure what we want from these providers. We want the foreclosure counselors to understand the rules for stopping a foreclosure and to use those rules for the maximum benefit of the homeowner. For years clients of credit card debt counseling agencies had access to concessions from lenders that were either unavailable or more difficult to access without the intercession of the agency. The effectiveness in accessing those concessions was a major goal of credit card debt counseling. More recently the goal of pre bankruptcy filing briefings was to avoid filing bankruptcy and the goal of post bankruptcy education was to keep people from needing to file another bankruptcy.   

We want these “counselors” to teach the consumers the basic facts of borrowing and using credit so that they will be more well informed. Hard to argue with that notion. There is no proof anywhere that any of these educational programs before or after default change the behavior of the consumers. For the past couple of decades there has been considerable debate about whether the increased consumer spending and borrowing was based on survival or on purchasing luxuries, but the dismal state of the economy has stepped in to reduce that spending and borrowing (and lending). In the past few years the behavioral economists and the savings movement have made progress and some important discoveries. We now know that if we create programs under which the non default conduct is enforced savings, and the consumer must opt out of that program not to save, then more saving occurs. If  the nondefault option in retirement programs is “wiser” investments and the consumer must opt our of that program to make other, less “wise” investments, then the result is “wiser” investments. Likewise we understand that human nature causes us to eat now and diet later and we really intend in our heart of hearts to diet later; same is true with smoking and drinking and gambling and SPENDING AND USING CREDIT. Our thought process influences us to believe we will  make changes in actions that are further off in the future. 

So, before we evaluate post trouble counseling or pre trouble financial literacy education we need to agree on the goals. Is the goal a better credit rating, or is it more saving; is it a change in behavior or a higher score on a test? Once we obtain some consensus then we need to develop measurement tools and apply them and perhaps we will be able to do so.

If such evaluations demonstrate that housing counselors “help” consumers more than credit card counselors help them, then we will want to investigate why. Is it the culture of the counselor’s employer or the funding or the fact that housing counselors are paid more or have better credentials. Is there a culture of quality in certain types of providers and not in others? Is there a culture of human service in some types of providers and not in others? If the culture of quality and human service seem to help then how do we instill that culture in more of the providers?
 

Comments

[David Leibowitz]

Housing counselors on HUD's listing at www.hud.gov know what they are doing. They know how to submit information and they know a decent modification from a not-so-decent modification. We work with them frequently in Wisconsin. See our resources at www.wisconsinforeclosureresource.com. We are organized statewide to give legal advice as well in support of the HUD approved counselors' work through a grant from Wisconsin Housing and Economic Development Administration www.wheda.com

[Raymond Bell]

I believe David has opened the door to lay a much needed evaluation process and also some type of uniformity of determing not only the goal of either prgram but to measure( or determine) its success. There is no doubt that those who dedicate their time in financial literacy and/or credit counseling are well intended. To date I believe there are good and not so good programs because the measure of either is lacking. Thanks David for an eye and mind opener.

[AMC]

HUD housing counselors are sure a whole lot better than the unaffiliated, for-profit "foreclosure help" folks - who are all scammers as far as I can tell.

How do you know a foreclosure "helper" is a scammer? He/she sent you an offer of 'help' on your foreclosure in the mail. Instead of responding, it would be more efficient to just use $800 to $2,400 in cash to barbecue some chicken and ribs in your Weber grill. At least then, at the end of the day, you'd have some pretty decent chicken and ribs.

[David]

AMC,
I agreee that there are scammers ready to take advantage of foreclosure victims and anyone else in financial distress and that we need to find effective ways to prevent the terrible damage they do. My only point is that we also need to make certain that the folks we accredit or authorize to help are up to the job.

[Mame]

I disagree with each of the previous entries. I regret not being able to use my real name, as I have referred HOC counselors to creditslips and advised them to read it daily. I don't know if they do and would hate to have them hear what I have to say. They ceratinly have a function in communities with budgeting and financial literacy but they have no place in the loss mitigation area on behalf of homeowners.
Not only is the HOPE program a joke, the HOC's getting involved in negotiating loan modifications is like moving a Native American on the Trail of Tears to a new land. Or like the old "assimilation" policy used during various immigration waves in United States history.
I manage a state sponsored Mortgage Assistance program via a state financial institution regulatory body, which oftentimes is federaly pre-empted, of course, but THAT's another story.......We have affiliated ourrselves with HOC's to refer and have referred pre-foreclosure or post-foreclosure consumers to one another. As a former Housing Advocate and banker and loan work-out specialist @ the FDIC, I see the intent of the HOC's is forthright and it intends to assist the public.
However, these people oftentimes cannot recogize a scam from a legitimate enterprise, have no idea what a loan doc looks like, have no concept of lending and credit underwriting, no skills in discussing posssible changes to terms and conditions with servicers and most of all, no contacts.
As as state regulator, we have great contacts which beam requests for loan modifications directly to the Legal Department.
They have no concept of PSA's and more often than not muddy the waters on mods I am trying to accomplish by, rather than negotiate respectfully, knowing full well there are certainly situations of improper lending practices, they harrass servicing agencies. They also advise borrowers not to deal directly with the servicer despite our establishing a contactc for them outside of the Collections area, where the HOC have their only "connections", which are useless.
They have no idea what a PSA is, and have no ability to "discover" irregularities which we as regulators can do something about.
In a perfect world, we would release our contact info to the HOC's so that perhaps they could get somewhere and effciiently use the funds they are alloted to asssit borrowers. But we are statutorily required not to share such information and in fact must keep it privileged and confidential WHEN it relates tp consumer files.
Even if this dis no exist, I would not relinquish our contacts. The HOC's would most likely compromise our well-established relations, allowing us to actually HELP the consumer.
The HOC's being funded is ridiculous and is part of the laughable HOPE program that is also like sending a consumer into the dark void of a black hole.
The HOPE program, the Home Affordability Program, and any other program adopted to address the delinquency, default and foreclosure problems MUST ADDRESS WALL ST. and the PSA. It must be understood that its not the BANKS (they service or hold about 10% of residential mortgages) but are now owned by Wall St. firms which in turn own servicers (e.g. Aurora/Lehman; Merrill/Wilshire). They refuse to alter their PSA's and the banks and non-banks refuse to admit the MBS and CDS and so many financial weapons of mass destruction, as Warren Buffet calls them, are worthless. If the public really know how worthless and hopeless these assets held on the books were, there would be a run on "banks" like we haven't seen since Rockefeller said in the 20's/30's" the best time to buy is when there is blood in the streets". Guess who's buying portfolios of distressed assets with PPIP $? The same goons who got us in this mess: Wall St., using the "shell corporation" of a "bank" for lack of a better word, to access public funds.
Got to get back to work; the phone is ringing off the hook.

[Mike Dillon]

Caveat - I have absolutely no personal experience with any HOCs whatsoever. That said...

Well stated, Mame. I can't speak to the experience, or lack thereof, of HOC employees but I would have to agree that the collective "HOPE" programs, FSASecure and in fact, any program that includes the membership of mortgage servicers are not worth the time and effort to investigate. If I remember correctly, the HOPE Now Alliance website was initially hosted on the Financial Services Roundtable site when it was first announced.

As an example, look at the "mortgage companies" on the membership list of the HOPE Now Alliance. http://www.hopenow.com/members.html How many of these are lenders/originators and how many are servicers? Without any kind of research or reference materials, I can sit here and ding roughly half of the "mortgage companies" on this list because of the amount of litigation filed against them by borrowers alone. Then factor in all of the "anecdotal" horror stories.

What makes things even worse, in my opinion, is that some of these companies, specifically mortgage **servicers** are receiving hundreds of millions of dollars in TARP funds. http://www.financialstability.gov/latest/reportsanddocs.html SPS is a perfect example. Some of you are familiar with my longstanding history with this company. Personally, I firmly believe that SPS should be prosecuted for criminal activity as opposed to being "rewarded" with taxpayer money - but that's just my opinion.

Select Portfolio Servicing $376 million 04/13/09

Ocwen $659 Million 04/16/09

Saxon $407 Million 04/13/09

Wilshire $366 Million 04/20/09

and the list continues for a running total of $14.3 Billion.

And yet, no one seems to see any problem with this at all despite the fact that this is an insult to the former and current alleged victims of SPS and others. All one would have to do to get an idea of the sheer asininity of this financial boondoggle would be to compare the list of servicer/TARP recipients to the US District court civil case filings at Justia.com http://dockets.justia.com/ to see just how much **CIVIL** litigation each recipient is involved in.

Of course, someone really needs to explain exactly WHY these servicers are receiving hundreds of millions of taxpayer dollars to begin with. As Mame already alluded to, depending on the terms of individual PSAs, servicers get to keep any modification fees as "additional servicing compensation" - right along with the monthly late fees, assumption fees and pre-payment penalties.

In a similar vein, Reuters' Al Yoon had an interesting piece Wednesday regarding, I beleive, H.R. 1106 "US mortgage bill seen fostering abuse, shams-report" http://uk.reuters.com/article/marketsNewsUS/idUKN2940285720090429

[Rob]

I have a house in Vegas with loans serviced by Aurora and SPS. I am f***ed.

Live and learn.

[Mike Dillon]

Rob, start doing some research now just to be safe... You're going to want to be familiar with http://www.ftc.gov.fairbanks - just in case.

Don't hesitate if you've got any questions about SPS that I may be able to answer for you.

Live and learn - at all times. But know that there was little to nothing that you could have done, short of either paying all cash for your place and never mortgaging it or simply not purchasing it, in order to attempt to avoid those servicers. Borrowers have zero control over who services their loans.

[Patches]

Ya, Mike can deffinately shed some light on PSAs. All you have to do is ask. You definately opened my eyes Mike. I agree for the most part with what Mame stated but I know because of AMC that the Mortgage and Servicing industries toasted(litteraly) the HOPE fiasco. It was definately a stalling tactic, for sure. I think that Senator Mendozas'??(R)FL recomendation to create a "safe harbor" in the stimulus bill may have gotten Servicers to lossen the strings a bit more. The "safe harbor" I refer to never made it into the final stimulus bill. It would have provided protection to Servicers who modified loans... The rigidity of the PSAs I think leave the Servicers exposed to lawsuits by investors(why they whould sue when they are losing so much money really does not make too much sense to me).

[Mame]

Please help me out here: its my understanding that the safe harbor section re-appeared in the mortgage reform bill that just passed the House yesterday; did it receive the support of 60 Republicans in a vote of 300 to 114 because this was ommitted? Commentary in today's American Banker discusses the "regulatory taking" argument which would support the rights of a state to enact legislation which interfered in the contractual rights of two private parties, i.e. investors and servicers via the PSA. The article is in support of this concept and is drafted by Raymond Natter, former Deputy Counsel of the OCC and former counsel to the Senate Banking Committee. You can google it but usually American Banker's articles can only be viewed on line by those with a subscription. If you'd like to read it, send me your e-mail addresses here and I will forward it to you. You should read it in conjunction with an article that appeared in the Washington University Law Review in March of 09 that you CAN access on line by googling: Beyond Fairness: The Economic and Legal Case for a Sweeping Federal Mortgage Modification Mandate, by Michael C. Macchiarola and Arun Abraham. Attorney Natter's view is in concert wwith that of the authors of the law review article: there are 4 consitutional doctrines that constrain state interference with private contract.......and, among other things, "stabilizing the national economy through foreclosure mitigation clearly falls within the purview of Congress's power to regulate interstate commerce".
ALSO FYI: Ocwen, best known for servicing sub-prime mortgages, gas decided against purchasing Kent County Stae Bank in Jayton, TX and convert to a bank holding company. Why bother? They got a contract in February to service 5,000 low-doc loans that were at least 60 days delinquent with Freddie Mac. Ocwen is now "reaching out" to FHA to acquire loans directly from the agency that may be "challenged". Ocwen is also looking to buy FHA loan pools or platforms from other servicers, according to Ocwen President Ron Faris. After the Freddie contract ad a purchase of servicing rights during the quarter, Ocwen reported its first portfolio growth since Q3 2007. The portfolio had been 1) suffering due to the subprime market vanishing AND 2)shrinking due to liquidity constraints. But last quarter Ocwen renewed $200MM of credit facilities for making servicing advances ( money it fromts to mortgage investors typically when a borrower missses a payment) and raised $49 MM in a private placement. It now has $640MM of unused borrowing capacity. Who needs to buy a bank when things have worked out this well?
Anyway, please let me know about the safe harbor clause actually disappearing altogether; its unclear whether the Senate has plans to take up the bill .