Good Mortgage Servicing: A Way Out for the Millions At Risk of Foreclosure
Homeownership is critical to building wealth and serves as a measure of financial security. Yet 1.3 percent of mortgage loans issued in the United States are in delinquency and another 1.3 percent are in foreclosure. Without specific and targeted intervention, thousands of homeowners could join over 9.3 million families who have lost their homes since the housing bubble collapsed, either to foreclosure or a foreclosure-associated transaction.
The economic recovery helped many Americans get past the foreclosure crisis. But the recovery was not equal. For people of color, who stored more of their wealth in home equity, true recovery has been slow. As of 2015, White households had seven times as much wealth as Black households. Hispanic households do not fare much better. According to data from the Urban Institute, homeownership rates for Black households have still not reached pre-recession rates, and some analysts claim this is mostly because of foreclosures.
What if there is a way to better support borrowers at risk of foreclosure? High-touch servicing is enhanced servicing that involves closer and more frequent contact between the mortgage servicer and the borrower. In Prosperity Now’s new report, Preventing Foreclosure, Preserving Homeownership: How Servicers Use High-Touch Methods to Reach Homeowners, we examine high-touch servicing processes for several Community Development Financial Institutions (CDFIs), state housing finance agencies (HFAs) and other mortgage servicers. Based on our research, we recommend servicers introduce the following practices:
- Timely and proactive initial contact: Establish direct and personal communication with the borrower as early as possible to determine the reason for delinquency, their current financial status and potential resolutions other than foreclosure.
- Hands-on interaction with the borrower: Institute customer segmentation so that delinquent borrowers are supported by staff who are technically skilled to deal with their specific manner of delinquency.
- Provide targeted modifications/resolutions: Develop a clear framework of workout options that can be uniquely tailored to preserve homeowners’ ability to stay in their home or future ability to purchase, as well as lenders’ interest in loss mitigation.
At Prosperity Now, we believe that, with the right tools and resources, more low- and moderate-income Americans and people of color can unlock the wealth-building benefits of homeownership. High-touch servicing is just one of those tools that will support sustainable homeownership for low and moderate-income borrowers.
Join the Affordable Homeownership Network to learn more about the work Prosperity Now is doing to make homeownership affordable for everyone.