According to the Mortgage Bankers Association, about one-quarter of a million families face foreclosure every three months. The foreclosure statistics are staggering and, by all indications, there won't be a meaningful reverse anytime soon.
Despite the continuing crisis, some in Congress want to cut funding for mortgage counseling for distressed homeowners. The considerable amount of misinformation currently circulating as to the merits of counseling is a key driver of this misguided proposal. So, let's examine who benefits from the process — and who will benefit if funding for counseling is eliminated.
My organization, the Homeownership Preservation Foundation, is the nonprofit that operates the national hot line to direct homeowners who are seeking to avoid foreclosure to accredited counseling services. We are on the front lines of what's really happening across the country. While the individual financial, sociodemographic and employment circumstances of the callers vary greatly, their desperation for reliable information and guidance is universal.
We've seen an alarming uptick in the number of callers who, in addition to dealing with the stress of possible foreclosure, have been victimized by some type of fraudulent activity.
The Federal Trade Commission in February issued a rule prohibiting the payment of any up-front fees to negotiate mortgage-reduction payments on behalf of a homeowner. Nevertheless an untold number of companies and individuals continue to openly violate the rule, asking for an average up-front fee of $2,589.58 to modify a mortgage. Without exception, callers said that no mortgage reduction was achieved or no meaningful work was ever performed.
Mortgage scam artists seem to prey on minorities in particular. Virtually half of the potential scam calls fielded since the hot line was launched were from homeowners who voluntarily identified themselves as African-American, Hispanic or Asian.
The same population groups that were disproportionately targeted for predatory lending during the housing boom are now bearing the brunt of an unusually high percentage of mortgage scams. Senior citizens across all demographics are also particularly vulnerable.
California far and away had the highest incident of reported possibly fraudulent activity, accounting for 22% of the calls. Florida was the second highest with 7%, followed by Texas with 5%, New York with 5% and Georgia with 4%. A look at the data in terms of fraud reports from major cities shows that Miami ranked highest among cities for reported scams, trailed by Los Angeles, Las Vegas, Houston and Chicago.
Many of the callers to the Homeowner's HOPE hot line who were victimized by a scam artist didn't realize they had been conned. Antiscam counseling has now become a critical part of the service we provide to all callers. We educate homeowners about common scams and the red flags to look for so that they aren't victimized in the process of trying to resolve their mortgage problems. In some cases this counseling is, unfortunately, after the fact, but in most cases it is a preventative intervention.
If Congress follows through on plans to curtail funding for counseling distressed homeowners, who wins?
Not the homeowners who otherwise may have had an opportunity to stay in their homes. Not the banks that are denied the opportunity to keep more loans performing and will have yet more real estate to unload. Not the national housing market, which already has a glut of foreclosed homes. Not local real estate markets, which will continue to stagnate as supply overwhelms demand. Not local taxpayers, who indirectly pay for increased foreclosures through a smaller residential tax base and heightened police patrols of abandoned homes.
Unfortunately, none of that will matter much to those who dismiss any suggested benefit of counseling. Despite their rhetoric, the fact remains that counseling works:
- Homeowners who receive counseling are 1.7 times more likely to cure their foreclosure than those who did not receive counseling.
- Seventy-one percent of those homeowners counseled by the Homeowner's HOPE hot line report that they were still in their home one year later.
- Homeowners already seriously delinquent on their loans were 60% (staying consistent with before) more likely to avoid foreclosure after meeting with a counselor.
- Homeowners who received modified loans after being counseled had their mortgage payments lowered an additional $267 more than those who got modifications without being counseled.
According to RealtyTrac, a publisher of foreclosure-related data, there were a record number of foreclosures in 2010; more than 1 million homes were repossessed. We need to be doing more, not less, to reverse the trend.
Depriving homeowners of easy access to trained counselors who can help them navigate their murky financial waters would be an egregiously bad decision. The only beneficiaries would be the mortgage scam artists who would no longer be thwarted by trusted counselors advising vulnerable homeowners.