Since the financial crisis of 2007, housing issues continue to be a hot topic throughout the U.S. And mortgage defaults are expected to remain elevated until at least 2016, according to a survey by the Professional Risk Managers’ International Association.
Despite the challenges over the past five years, many credit unions have taken advantage of financial opportunities in the housing market. During the first three months of 2012, credit unions originated more than $26 billion in first mortgages—the first time they’ve originated more than 8% of U.S. mortgages in any given three-month period.
Although the financial crisis has eased, millions of homeowners are still struggling. A growing number of current homeowners are paying more than 50% of their income on housing.
This is troubling because the budgets of many of these borrowers are stretched extremely thin. An unexpected expense, such as an auto repair or medical bill, could cause them to become delinquent on their mortgages.
Counseling mitigates foreclosures
Several recent studies provide evidence that both pre-purchase homebuyer counseling and foreclosure mitigation counseling are significantly effective in reducing mortgage delinquency and foreclosure.
In May 2012, the U.S. Department of Housing and Urban Development (HUD) released a that found nearly 70% of delinquent homeowners who received counseling obtained a mortgage remedy to retain their home, and 56% cured their defaults and became current on their mortgages. The best outcomes occurred when the counseling was received one to three months after the initial delinquency.
A 2010 National Foreclosure Mitigation Counseling Program study came to similar conclusions. It found that borrowers who had missed a mortgage payment were about 50% more likely to become current on payments when they received housing counseling.
Another 2012 HUD study evaluated pre-purchase housing counseling. Researchers found that none of the participants that purchased a home had a major derogatory event on a mortgage account 12 to 18 months after receiving pre-purchase counseling.
Furthermore, HUD concluded that pre-purchase counseling helps borrowers make good decisions regarding future homeownership.
Approximately 2,700 HUD-approved housing counseling agencies strive to provide consumers with objective housing and financial advice. Some housing counseling agencies are also nonprofit credit counseling organizations that can offer members holistic assistance with additional financial issues such as credit card debt.
These credit counselors can assist prospective homeowners by assessing their household budgets, evaluating their credit quality, and helping them pay down debt and bring past due bills current.
If a homeowner is struggling to make a mortgage payment, a credit counselor can help the debtor explore government programs, servicer programs, and other options to resolve the mortgage problem. If the homeowner has high credit card debt, the counselor may be able to lower the amount the consumers pays on interest and fees to free up more money for the mortgage payment.
Part of the process
Some credit unions are making housing counseling part of their mortgage process. In Jacksonville, Fla., for example, $430 million asset 121 Financial Credit Union requires all members seeking home loan modifications to contact GreenPath Debt Solutions, a CUNA Strategic Services alliance provider.
GreenPath conducts a financial evaluation to identify opportunities for lowering members’ expenses or increasing their income. Cathy Hufstetler, 121 Financial’s director of lending, says the financial analysis not only benefits the member, it helps the credit union decide how to proceed with loan modifications.
“Counseling shows that the member is a participant, has a plan, and is prepared to be successful,” says Gail Lewis the credit union’s director of consumer loans. “In these challenging economic times, housing counseling should always be required before a purchase and before an existing loan is modified.”
Even though most members do not hold a mortgage with their credit union, they will often turn to the credit union for advice when faced with trouble, she says. Referring members to a HUD-approved housing counseling agency not only benefits the member’s immediate situation, it can improve their creditworthiness in the long run and make them good candidates for other credit union products in the future.