New rules recently came into effect which require most mortgage servicing companies send applications for loan modification to borrowers who fall behind on their payments. Most loan servicers also let borrowers know that assistance with completing the application is available at no cost to homeowners by HUD-approved counseling agencies. No doubt some homeowners ask themselves: “Why work with a housing counselor?” Why not just complete the modification application on their own and send it in?
One good reason to work with a counselor is so that you are not navigating a stressful, sometimes confusing situation on your own. Housing counselors have the training and experience to let you know what deadlines you may be facing, which letters from the bank are cause for concern and which are harmless. They can also help hold you accountable for getting paperwork in on time.
Whatever situation you are facing with regard to your mortgage, there’s a good chance your counselor will have seen it before. And, if he or she hasn’t, they will usually have a colleague who has.
While a housing counselor will take the time to understand your situation, they will also maintain emotional distance. That allows counselors to think clearly about all of the options that may be available to you, to help you sort through the advantages and challenges of each option and then to assist you as you move in the direction you decide is best for you.
Housing counselors each see dozens, if not hundreds, of loan modifications every year. The hope is that you will only ever see one modification. A housing counselor’s breadth of experience gives them perspective on what should be possible in a wide variety of circumstances, and what particular servicers require in the way of documentation, etc. It also gives counselors a strong incentive to know the guidelines of the various programs you may qualify for and what rules your loan servicer can be held to in terms of handling your application.
From a purely practical perspective, housing counselors often have resources that homeowners do not. For instance, many counselors have access to an electronic system for exchanging documents with loan servicers. This all but eliminates fruitless cycles of clients sending documents to servicers only to have the servicers claim that the documents were never received.
Ultimately, the value of working with a housing counselor shows up in the results they get for their clients. A December 2010 study by the Urban Institute found that clients who worked with housing counselors reduced their payments on average by $267 per month more than clients who sought modifications on their own. The study also found that within eight months of getting a loan modification 49% of the homeowners who obtained modifications on their own had fallen three or more months behind on their new payments. The same figure for people who worked with housing counselors was 36%.
David Ryan is a Foreclosure Prevention & Intervention Counselor for HOMEteam.