Written by Paul Bellamy, J.D., Ph.D.
February 19, 2010
An effective response to the foreclosure disaster continues to elude the mortgage industry and public officials alike. Realistically, no one believes that all troubled homeowners can, or should, be saved from foreclosure. Lenders made far too many reckless loans and too many borrowers are in situations that are, sadly, beyond help.
But we can do much better at coping with this mess by rethinking the problem's origin and striving to achieve more realistic results in responding to it. Reaching even scaled back goals would leapfrog over the public/private train wreck that currently passes for a solution to the foreclosure epidemic.
For years this problem gathered steam, while the servicing industry sat on its hands pretending that the system in place from 10 years ago would serve to meet the burgeoning crisis. Predictably, it hasn't even come close.
The industry's stubborn resistance to scaling up continues to produce embarrassing results. Bitter and frustrated homeowners know this system does not work after spending long hours on the phone with a succession of ill-informed "specialists" located hundreds and thousands of miles away. Specialists who are themselves working under terrible conditions for lousy pay and foundering in a maze of "decision trees" and useless "default servicing algorithms." The telephone is central to this industry effort, but ironically, phones are mostly used to prevent and divert, rather than enhance communication with homeowners.
But by looking at how we got into this foreclosure crisis we can see why we're not succeeding in getting out.
It took hundreds of thousands of mortgage brokers half a decade to bring our housing finance system to the edge of collapse. It was this horde of brokers working in our communities that arranged millions of bad loans for confused, indifferent and reckless borrowers. The industry relied upon this army of local agents to round up loan prospects and then mediate between the lenders (also located hundreds and thousands of miles away) and the borrowers. Without brokers engaged in those face to face interactions and their aggressive follow-up with the lenders to process the loan applications, the plague of troubled mortgages now haunting us would never have been transacted in the first place. The lesson here is that it was the brokers who were the key to scaling up and driving the loan originating on front side of this catastrophe.
Now we find ourselves on the back side of the mortgage fiasco. What we need to fix this mess is more local "anti-brokers" who can help delinquent borrowers reach sustainable arrangements with the mortgage servicers (who are located hundreds and thousands of miles away). These 'anti-brokers' are housing counselors trained in foreclosure prevention. They bridge the same gaps the mortgage brokers filled on the front side of this lending debacle.
Unfortunately, we don't have hundreds of thousands of housing counselors. But counselors have demonstrated that they can improve outcomes for delinquent borrowers up to 60 percent more often when compared to unassisted, phone-bound borrowers stuck working "toll free, direct" with mortgage servicers. This improved rate of successful outcomes applied across the millions of troubled borrowers nationwide holds a staggering potential benefit for every community touched by the foreclosure crisis.
Washington has ignored what works, and worse, has been cutting back on its support for housing counselors. Initial federal funding to local nonprofit counseling groups was cut to a third of its former levels. Yet the crisis grows deeper and more widespread than it has been at any time since the collapse of home prices started back in 2006. Counseling works; but it is not being supported by the industry, the federal government or the policy mavens who have reduced this tragedy to an endless, speculative talkfest.
We must support housing counseling with significantly greater funding. We desperately need to hire and train more counselors, not cut their ranks in favor of supporting the industry's notorious and intractable incompetence. The servicers have just been "phoning it in" (literally) and it isn't working.
It took droves of loan brokers to shepherd us into this mortgage meltdown. What we need now are more "anti-brokers" to work locally, unlending, case by case, with the millions of troubled borrowers in our communities. It may not be a sexy, silver bullet solution to this problem, but it is the only one that works.
Bellamy is Director of the Cuyahoga County Foreclosure Prevention Program for the Cuyahoga County Treasurer's Office in Cleveland.