Freddie Mac is counting on an approach to delinquent borrowers it developed during the foreclosure crisis to forestall any new problems some of those same borrowers may encounter with their maturing loan modifications.  The company is trying to be preemptive with the thousands of homeowners who had mortgages modified through the HAMP program and will soon be faced with interest rate resets.

Lisa Cookson, Freddie Mac's vice president for single-family customer and operational services writes in the company's Executive Perspectives blog that Freddie Mac, working with several credit counseling services, developed a program ten years ago as an experiment to reach delinquent homeowners who were not in contact with their loan servicers.

The program evolved from a 2005 survey which found that 31 percent of delinquent borrowers had not contacted their lender and 28 percent felt there was no point in doing so.  At the same time nearly three-quarters of the homeowners said they would be willing to talk with a housing counseling agency but only 38 percent knew such counseling was available.

Freddie Mac then sought to inform the public about the benefits of delinquency counseling, and to motivate those homeowners who wouldn't call their servicer to talk to one of the counseling agencies.  Those agencies were also given contact lists of delinquent homeowners who had stopped talking with their servicers.  The agencies then experimented with different methods to engage the homeowners, win their confidence, counsel them, and put them back in touch with their servicer who could try and help the homeowner reinstate the loan or assist them with a workout option.  .

Cookson said the agencies provided a holistic counseling approach that went beyond income and expenses and also included lifestyle changes that could help homeowners succeed over the long term. Developing a financial budget that reduced overall debt and increased savings allowed many homeowners to return their mortgage to good standing and prepare for any future financial road bumps.

The program, she said, had exceeded expectations every step of the way.  Over a half-million homeowners have participated in the program over the last ten years and an estimated 350,000 homes have been saved from foreclosure. It has also proven to be very cost-effective.  Every dollar the company has spent has returned $10 or more in benefits to it and to taxpayers.

Now Freddie Mac is hoping the program will work again.  The same counseling agencies are being given lists of HAMP and other borrowers with loan modifications to contact and use their expertise to engage and prepare homeowners for the rate change.  They are also providing counseling for homeowners with more recent loan modifications to ensure they understand their new loan terms and are prepared to succeed with the new payments.