Unsung Heroes: The Success of Nonprofit Counseling Agencies in Combating Foreclosures

This is a true story. Actually, it is two stories about the foreclosure crisis, both true.

We’re familiar with the first story. In Massachusetts and across the country, the foreclosure crisis continues to decimate families, and communities. The response from loan servicers has ranged from marginally improved at best, to anywhere from woefully inadequate to counter-productive at worst. The programs initiated by the federal government have been too little and too late and too reliant on the voluntary participation of lenders.

According to data provided by the Warren Group to the Boston Globe, the number of homeowners in Massachusetts who lost their properties to foreclosure in April, 2010 (1,372) is 80% more than the number from April of 2009 (764), and the number of foreclosure petitions (the first step in the foreclosure process) jumped 21% compared to April of 2009. Furthermore, lenders are getting more efficient at foreclosure, reducing the time it takes to complete a foreclosure from 9.2 months in October, 2008 to 4.6 months in November 2009.

But there is another story, hidden under the grim headlines of the first story. Nonprofit counseling agencies across the Commonwealth are helping prevent foreclosure, and when necessary they are helping people transition to new housing so they can land on their feet.

During calendar year 2009, according to data collected by MACDC through its GOALs Survey, MACDC Members counseled 5,200 households at risk of foreclosure. The same members reported that, by the end of calendar year 2009, 31% (1,590 households) had achieved a positive outcome (averting foreclosure) by the end of the year. Since it can take many months for these situations to be resolved many of these 5,200 households will eventually achieve a positive outcome in 2010. Furthermore, the percentage of families in Massachusetts achieving successful outcomes within the same year increased from 24% in 2008 to 31% in 2009.

Some of this success is likely attributable to the Obama Administration’s Home Affordable Modification Program (HAMP) that was introduced in early 2009. Despite significant problems with HAMP in moving borrowers from temporary to permanent loan modifications, by February, 2010, over 4,000 Massachusetts families had received permanent loan modifications under the program.

The positive impact of foreclosure prevention counseling is further demonstrated by data on the National Foreclosure Mitigation Counseling Program (NFMC). The most recent findings from an Urban Institute analysis of NFMC showed that homeowners who sought counseling after a foreclosure filing were 1.6 times more likely to get out of foreclosure, and avoid a foreclosure sale, than homeowners not assisted by counseling.

The experience of MACDC members bears out the positive impact of this counseling. Juan Bonilla, the Director of Homeownership Programs at Lawrence Community Works (LCW), tells a story of an elderly man who was not aware until days before his home was to be foreclosed that there was assistance available. With LCW’s help he got the auction postponed and later submitted the documents necessary for a loan modification, which LCW expects to be successful. There was a woman whose lender gave her a trial modification, and at its completion insisted she enter another trial period at a higher interest rate and payment, because the lender mistakenly calculated that her income had increased 25%. Because of the intervention and the persistence of the LCW counselors, both homeowners remain in their homes. Since 2007, LCW has provided foreclosure prevention assistance to approximately 400 families in the region, and 59% of these families have achieved positive outcomes.

At the Neighborhood of Affordable Housing (NOAH) in East Boston, Counselor Smita Das tells the story of a single mother of two young children. After losing her job, she was unable to pay the two mortgages on her triple-decker. With NOAH’s helped she received a trail modification under the HAMP program, and then a permanent modification that lowered the combined monthly payment on her mortgages from $4,500 to just over $2,800.

Michele Morris of Valley CDC in Northampton highlights an important reason for counselors’ success in helping homeowners in crisis: the ability to develop a positive working relationship with the loan servicer’s staff. Homeowners may typically vent their frustration by treating the loan servicer’s staff as an adversary, which is not conducive to getting the family’s loan prioritized and getting the complex servicing errors untangled.

The moral of this story is clear. With all the challenges associated with loan modifications and foreclosure prevention counseling, it remains the fastest and most cost effective method of assisting families facing foreclosure, preserving family wealth, avoiding displacement, and stabilizing neighborhoods. Our frustration and anger about the on-going foreclosure crisis should not obscure the important success that nonprofit organizations are having day after day, one family at a time. We need to dramatically increase support for counseling, not throw in the towel in despair.