Cuyahoga County Ohio Foreclosure Prevention Project Open Letter to the Industry

April 13th, 2010

 

We need more Anti-Brokers to do More Un-lending

An effective response to the foreclosure disaster continues to elude the mortgage industry and public officials alike.  No one believes that all the troubled homeowners can, or should, be saved from foreclosure.  There are far too many reckless loans still in the mix and too many borrowers are in predicaments that are, sadly, irresolvable.  But we can do much better coping with this mess by rethinking the origins of the problem and by aspiring to achieve more modest results in responding to it.  Reaching even scaled back goals would leapfrog over the public/private train wreck that currently passes for a solution to the foreclosure epidemic.     

For years this problem gathered steam while the servicing industry sat on its “inelastic” contracts pretending that the system in place from ten years ago would serve to meet the burgeoning delinquency crisis.  It hasn’t even come close.    

Bitter and frustrated homeowners know this system does not work, spending long hours on the phone with a succession of ill-informed “specialists” located hundreds and thousands of miles away.  Specialists who are themselves foundering in a maze of decision trees and useless default servicing algorithms.  The telephone is central to this industry effort, but as often not, telephones prevent rather than enhance communication with homeowners.    

The federal government’s “HAMP” program hasn’t improved any of these persistent industry problems.  While well intended, the numerous improvements to the program seem to make it evermore complicated and difficult to apply to borrower predicaments.     

But by looking at how we got into the lending catastrophe we can see why we’re not succeeding in getting out.  It took hordes of mortgage brokers to lead us into this mess and we need an army of their counterparts (foreclosure counselors) working on the backside of the loan debacle to get us out .     

Hundreds of thousands of mortgage brokers spent half a decade bringing our housing finance system to this current sorry state of affairs.  It was this army of brokers working in our communities that expedited the millions of bad loans to confused, indifferent and heedless borrowers.  The originating side of the industry relied upon its local agents to round up loan prospects, take applications and then mediate between the lenders and the borrowers.  Without brokers engaged in those face to face interactions and their aggressive follow through with both the borrowers and the lenders, the plague of troubled mortgages now haunting us would never have been transacted in the first place.     

The lesson here is that we need to fix this mess by reversing the same model that got us into trouble. We need more local, community-based, foreclosure counselors--- “anti-brokers”--- who can serve the same role on the back side of this bubble that mortgage brokers performed originating the loans. They are trained in foreclosure prevention, and they bridge the same gaps between borrowers and the industry that the mortgage brokers filled on the front side of this disaster.      

Unfortunately, we don’t number foreclosure counselors in the hundreds of thousands.  Across the country they only number in the thousands---it’s only squads, now vs. armies, then.  But so far counselors have demonstrated that they can improve outcomes with delinquent borrowers by 60% compared to unassisted, phone-bound homeowners working long-distance with servicers.  That improved rate of successful outcomes---applied across the millions of troubled borrowers nationwide---holds a staggering potential for ameliorating this disaster.      

What counselors do is not exciting and does not pretend to be a silver bullet. The best of them slog along dealing with distant, inscrutable servicers and frustrated, impatient homeowners to get small, hard won victories, one by one.  Their success is not glamorous and mostly goes unlauded and unacknowledged.     

Washington has ignored what works, and worse, has been cutting back on its support for housing counselors.  Initial federal funding to local non-profit counseling groups was cut to a third of its former levels.  This, as the crisis grows deeper and more widespread than it has been at any time since the collapse of housing prices began in 2006.  While counseling works, it is not supported by most of the industry, the federal government nor the policy mavens who have reduced coping with this tragedy to an endless series of speculative snipe hunts .    

We need to support foreclosure counseling with more funding.  We need to hire and train more counselors, not cut their ranks in favor the discredited vagaries of the ever more complex, industry-driven HAMP effort.  Frankly, HAMP servicers have been “phoning it in” (literally) and it isn’t working.    

It took legions of local brokers to shepherd us into this lending catastrophe.  What we desperately need now are more anti-brokers to work locally with the troubled borrowers in our communities.  Counselors who accept the daunting task of “un-lending”---case by case, one workout at a time. It may not be a sexy solution to this problem, but it has proved to be the one that works.

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