Millions of homeowners need help and are facing possible foreclosure but not many are reaching out for it. In fact, it's estimated that 60 percent of borrowers will never establish communication with their lender prior to losing their homes.
In an effort to understand why, I contacted Todd Buckner, President of National Housing Solutions, NHS. According to Mr. Buckner, "The servicer needs to accept the responsibility for this problem. Servicers today still use the same outdated heavy-handed collection tactics that they've used for the last 30 years. The only difference is the incorporation of auto dialers and third world call centers in an effort to reduce cost. The question Wall Street's investors need to ask is, are the servicers being effective? I believe that it's easy to answer that question by looking at the numbers."
Why not collections, why shouldn't the servicer call the borrower and ask for payment? According to Buckner, "National Housing Solutions spent its first 15 months in business trying to answer that very question. Through the use of focus groups and speaking with more than 3,000 late-stage defaulted borrowers, we discovered that people don't respond to being called three times per day for 90 days straight. In fact, we found the typical outcome to be borrower alienation."
Instead, Buckner says, fostering a relationship early on with the borrowers and gaining information about their ability to pay creates a more successful outcome for everyone.
NHS, has created a proprietary Loss Mitigation model that helps reduce mortgage defaults. Buckner refers to it as a "Hyper-Escalation" strategy that starts with using Home Retention Counselors who contact defaulted borrowers within the first 30 days of default. By building a high-trust relationship, with no cost to the borrower, counselors are able to learn about the borrowers' financial situation and their ability to pay.
The second phase of the model involves gathering verified borrower financial data including income, cost of debt servicing, debt serviced, and cost of living. NHS then completes a Borrower Financial Statement with accurate net income.
Buckner says mortgage servicers don't verify cost of living and that is a large part of the reason for the majority of borrowers not being able to perform in their servicer-sponsored mortgage repayment plan "workouts".
Instead, Buckner says servicers trying to collect on the debt verify borrowers' income and run credit reports. "The servicers' workout failure is due to their use of statistical data from the Department of Labor and the Census Bureau to account for the borrower's cost of living. This method heavily skews the servicers' perception of the borrowers' ability to pay by showing positive net income when there is an obvious monthly deficit. Servicers are offering workouts based on the equivalent of stated information. Basic accounting principals tell you that if one number in an income statement is stated, they might as well all be stated. Furthermore, debt-to-income ratios don't matter because it's the borrowers' cost of living that is causing the default," explains Buckner.
The solution then comes back to NHS's model -- early intervention, open communication, verified financial data which accurately accounts for borrower net income.
According to Buckner, a government bailout is not the solution. Families need homes they can afford, and this shouldn't come at the cost of property values. Instead, let's fix the underlying problem. If borrowers' positive net income can be verified, NHS introduces borrowers to their servicers' loss mitigation department. The company stays engaged and helps ensure that the workout is realistic for the borrowers to perform as well as beneficial to the investor.
"If disposition of the home is the only way in which the borrowers can once again obtain positive net income, we support the borrowers in quickly and painlessly relocating to homes they can afford." says Buckner.
NHS is compensated by the mortgage security investor. Service to the borrower is provided at no cost.
For more information, visit nationalhousingsolutions.net.