Key Takeaways from Crisis-Era Loss Mitigation Programs for the Post-Crisis Environment
Accessibility means that homeowners are able to understand, participate, and be eligible for foreclosure alternative programs. Practices that were found to benefit accessibility include:
- Standardizing servicer methods of interacting with homeowners to address delinquent borrowers punctually and efficiently.
- Streamlining the modification process and documentation.
- Offering delinquent homeowners a broad range of modification options that meet the needs of all stakeholders including homeowners, servicers, and investors.
Affordability means that homeowners are able to achieve meaningful payment relief and that offered solutions meet the needs of their specific hardships. Affordability has been promoted through the following practices.
- A waterfall program for qualified mortgages that applies modification options in a specific order. These options progress from lesser to more intensive measures and include capitalization, interest rate adjustments, term extensions, and principal forbearance/forgiveness.
- A holistic approach that considers the homeowner’s complete financial picture to satisfy their specific situation.
Sustainability means that servicers offer solutions to homeowners that stop default and enable borrowers to make full payments for the duration of the mortgage. Practices that support sustainability include:
- Meaningful payment reductions that are significant enough to make future payments sustainable. Loan modifications with greater payments adjustments consistently outperform modifications with smaller payment reductions.
- Early intervention with borrowers. Modifications with early intervention have better future performance.
- Housing and financial counseling, which have greatly increased a homeowner’s ability to cure a serious delinquency. In an Urban Institute study, counseled homeowners were less likely to default and nearly three times as likely to receive a loan modification than non-counseled homeowners.
Transparency means that all stakeholders can find and understand information about loss mitigation. Tools and information used to create transparency include:
- The MHA.gov website that offers standardized application packages, evaluation tools, fraud prevention information, and other educational resources available to the public.
- Information in any communication about the terms of a loan modification that helps the borrower understand the modification such as:
- The amount and term of payment reduction.
- The amount of a balloon payment due at the end of the modification (if any).
- Other options available if payment reduction is not possible.
AccountabilityAccountability means that there is effective oversight of foreclosure prevention programs. These practices have been found to include:
- A compliance process that included loan level testing as well as process and controls testing to ensure that a loan servicer is correctly following modification guidelines.
- Public reporting of servicer performance. The FHFA’s foreclosure prevention report has promoted accountability and helped improve servicer performance.