Every borrower wants to believe their homeownership journey will be smooth sailing, without financial hardships or missed mortgage payments. But as the last few years have taught us, unforeseen events like COVID-19, natural disasters, inflation and low affordable inventory make mortgage relief awareness critical.
Because homeowners weren’t thinking about unexpected events or hardships when they bought their home, they likely don’t consider relief options when they’re faced with a delinquency. They may think it’s impossible to get current with their payments or worry that they’re in danger of foreclosure.
A more connected housing ecosystem of lenders, servicers, real estate agents, housing counselors and other professionals working together can provide continuous education and proactive intervention to help overcome these challenges.
Early and ongoing education helps homeowners prepare for the unexpected.
Homeowners who are anxious about making payments or lack understanding of the mortgage process often ignore correspondence from their servicer for fear that it’s bad news — when it could just be a simple notice for a change of servicer.
For those borrowers who do have late or missing payments, early engagement is crucial. The longer the loan is delinquent, the less likely they’ll be able to take advantage of loss mitigation solutions, according to Donna Spencer, vice-president of servicer relationship and performance management at Freddie Mac Single-Family. “Ongoing homeowner education must be the new standard,” she said.
Currently, borrower education happens mainly with the servicer. However, opportunities exist for more collaboration with Freddie Mac and Fannie Mae and with mortgage professionals for an integrated approach that better supports the homeowner.
“Every borrower should have access to information that allows them to make sound financial decisions and enable them to continue to make their mortgage payments,” Spencer said. “If you can educate borrowers on their options in advance of a life event, when one happens it’s all about taking action.”
Mortgage professionals can break through these barriers by helping borrowers understand what to expect over the lifecycle of their mortgage.
“Laying the foundation of what the interactions could be in the course of some of these life events can help borrowers be more successful, have less interruptions with their payments and maintain their credit profile for future home purchases,” she said.
Relevant outreach creates a personalized touch and creates trust.
Spencer points out that some servicers are taking creative approaches to provide guidance that’s tailored to an individual homeowner’s specific needs and situation, including customized communication and use of data to help identify and assist with early intervention.
Automated homeowner outreach about how to apply for mortgage relief, for example, can be a fast follow after a borrower stops using auto draft for monthly mortgage payments — a predictive, proactive and relevant message that can prevent defaulting on the loan.
Similarly, an escrow analysis requested by the borrower after receiving an adjustment notice can be included with a quick video clip explaining the reason for the increase, and text message links to informational clips can better outline eligibility requirements and the application process for a payment deferral or loan modification. Both forms of outreach provide user-friendly, end-to-end guidance on mortgage processes that might be unfamiliar to the homeowner.
However, sometimes the best guidance for borrowers, including those who don’t qualify for a loan modification, isn’t to pursue a home retention option.
Instead, housing professionals across the ecosystem, from real estate agents to lenders to servicers, may suggest potential enhancements that would yield the property’s maximum value, allowing homeowners to use their equity as a tool for a clear exit strategy and move into a more affordable property.
“This is becoming a bigger opportunity due to house price appreciation,” Spencer noted.
If a borrower can’t financially recover from a life event, options such as selling their property allow them to exit homeownership gracefully, rather than going down the path of foreclosure.
And integrating debt management companies into servicing operations, which assist with budgeting, debt payoff and managing creditors on a homeowner’s behalf, help drive down recidivism.
Housing counselors help bridge the gap.
Another opportunity for improved homeowner education is integrating housing counselors as a resource.
“Housing counselors can provide the post-purchase education that the borrower may need,” said Stacey Walker, director of affordable lending at Freddie Mac Single-Family.
This can include information on budgeting and what to expect after purchasing a home, home maintenance advice, scams to avoid, disaster-related responses, what to do if a borrower becomes unemployed, what to expect from a servicer conversation and options for mortgage relief.
But there are misconceptions to overcome, including that their services are expensive. While the U.S. Department of Housing and Urban Development (HUD)-approved counseling agencies may charge reasonable and customary fees if they don’t create a financial hardship, Walker notes that many of the services are done at no cost to the homeowner.
Additionally, all counselors who work at HUD-approved agencies must undergo a rigorous process to become HUD-certified. This includes passing a written exam demonstrating competency in six key areas and following national industry standards for homeownership education and counseling.
“For homeowners, there’s often less apprehension than speaking to a servicer,” Walker said. “A borrower may benefit from an initial conversion with a housing counselor, which gives them time to process their options before reaching out to their servicer.” She cites the Freddie Mac Borrower Help Centers and Network and the housing counseling agency directory on the HUD website as being particularly helpful resources.
Freddie Mac offers effective default management solutions that servicers can offer to homeowners facing financial hardships, including payment deferrals and the Freddie Mac Flex Modification.
“Freddie Mac, servicers, housing counselors and other mortgage professionals can remind borrowers facing a life event that they do have options,” Spencer said. “Borrowers may be able to take advantage of one or more solutions in our toolkit to get back on track.”
Walker adds that housing counselors who partner with Freddie Mac can work directly with homeowners to assuage their concerns. “These professionals are educated about our loss mitigation tools and solutions so they can assist borrowers who call them with questions and empower them with information,” Walker said.
Above all else, mortgage professionals trying to help borrowers understand their options in case of a life event or disaster need to keep the lines of communication open from home purchase and beyond. As Spencer put it, “when we collaborate on homeowner education throughout the mortgage lifecycle, we advance sustainable homeownership and mitigate risk.”
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