Preliminary Analysis of National Foreclosure Mitigation Counseling Program Effects

Abstract

The National Foreclosure Mitigation Counseling (NFMC) program is a special federal appropriation, administered by NeighborWorks® America, to support a rapid expansion of foreclosure intervention counseling in response to the nationwide foreclosure crisis. This report updates preliminary analyses measuring the effect of the NFMC program on counseled homeowners. Overall, our analysis suggests that the program is having its intended effect of helping homeowners facing loss of their homes through foreclosure, specifically by increasing the likelihood of foreclosure cures, lowering borrowers’ monthly mortgage payments, and improving the sustainability of loan modifications that cure serious delinquencies and foreclosures.

The text below is an excerpt from the complete document. Read the entire brief in PDF format.

Executive Summary

The National Foreclosure Mitigation Counseling (NFMC) program is a special federal appropriation, administered by NeighborWorks® (NW) America, that is designed to support a rapid expansion of foreclosure intervention counseling in response to the nationwide foreclosure crisis. As this is a federal appropriation, NW America must inform Congress and other entities of the NFMC program's progress. The Urban Institute (UI) was selected by NW America to undertake a two-year evaluation of the NFMC program.

This report presents an update of the preliminary analysis of program effects that were first described in our report of November 2009 (Mayer et al.). In that report, we found positive effects for homeowners receiving NFMC counseling in 2008 in avoiding entering foreclosure, successfully curing an existing foreclosure, and obtaining a more favorable loan modification.

In this report, we update those previous analyses to include homeowners receiving NFMC counseling in the second program year, 2009. These new models also use an improved comparison sample selection design, which addressed potential sample selection issues raised by reviewers of our first report. We also present an entirely new analysis of the 2008 cohort of counseled and non-counseled homeowners that measures whether NFMC counseling has a positive impact on helping sustain foreclosure and delinquency cures, avoiding redefaults.

The multivariate statistical analysis presented in this report is based on a sample of close to 180,000 loans and answers the following questions about the NFMC program's performance through December 2009.

• Did the NFMC program help homeowners cure an existing foreclosure?
• Did the NFMC program help homeowners receive loan modifications that resulted in lower monthly payments than they would have otherwise received without counseling?
• Did the NFMC program help homeowners who cured a serious delinquency or foreclosure to sustain the cure?

This evaluation of program effects indicates that the initial answer to these three questions is "Yes," although the magnitude of the effects varies depending on the particular outcome. As detailed further in this report:

• The NFMC program was effective at helping homeowners cure an existing foreclosure. Many NFMC clients entered counseling already in foreclosure (25 percent) or entered foreclosure after starting counseling (17 percent). During the first two years of the program, the relative odds of counseled homeowners curing their foreclosure were 1.7 times greater than if they had not received NFMC counseling. The resulting difference in the cure rate means that an estimated 32,000 more NFMC clients cured their foreclosure by the end of December 2009 than would have occurred without receiving services from NFMC counselors.
• Loan modifications received by NFMC clients resulted in significantly lower monthly mortgage payments than would have been received without the help of the program. Lower monthly payments may help reduce the likelihood of a subsequent recurrence of borrower mortgage problems. On average, we estimated that NFMC clients who received loan modifications in the first two program years reduced their monthly payments by $267 more than they would have without NFMC counseling.
• Homeowners who obtained a loan modification that allowed them to cure an existing serious delinquency or foreclosure were much more likely to remain current on their mortgage if their loan modification was obtained with help from NFMC counseling. For clients counseled in 2008, counseling produced a 45 percent increase in the relative odds that a post-counseling modification would be sustained through 2009. The sustainability of modifications received after starting counseling was greater than that of homeowners who got modifications without counseling not only because counseled homeowners received larger monthly payment reductions, but also because they benefitted from counseling in other ways, such as through assistance with financial management.
• Homeowners receiving loan modifications were much more likely to cure their defaults if they received counseling before the re-working of their loans. For clients counseled in 2008, the relative odds of bringing their loans to current were 53 percent higher if they received pre-modification counseling than if they did not. That means that counseling produced a combination of positive effects in moving people from serious delinquency or foreclosure to a sustained cure of their mortgages, increasing the odds of obtaining a cure in the first place and then raising the odds of sustaining the larger number of cures that resulted.

Overall, our ongoing analysis of the NFMC program suggests that the program is having its intended effect of helping homeowners facing loss of their homes through foreclosure. The effects are strong and consistent through the second program year. The analysis in this report substantially extends our previous findings by observing two years of counseled borrowers, instead of just one year, and by being able to follow early entrants to counseling over a longer time. That enabled us to examine for the first time the sustainability of cures of troubled loans.

In subsequent analyses, to be presented in a third update and in a final evaluation report, we will be able to estimate the program's impact on clients over a still longer period of time, which will allow a better summative measurement of the overall impact of the NFMC program. We will also be able to assess additional sustainability issues, including the effect of counseling in avoiding redefault by people curing their delinquencies and foreclosures without loan modifications.

End of excerpt. The entire brief is available in PDF format.

Usage and reprints: Most publications may be downloaded free of charge from the web site and may be used and copies made for research, academic, policy or other non-commercial purposes. Proper attribution is required. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact publicaffairs@urban.org.

If you are unable to access or print the PDF document please contact us or call the Publications Office at (202) 261-5687.

Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute.