MBA and Education
There was one common theme that struck me in 2024’s Mortgage Bankers Association conference in Orlando. Multiple people at the various panels emphasized the importance of educating borrowers that have defaulted on their mortgage. We need to continue this conversation and highlight the importance of teaching borrowers the processes of home retention and foreclosure that many in the industry take for granted. The need is even more prominent as servicers adapt to more sophisticated waterfalls and regulations that are being released this year.
“There’s a real need for servicers to do education,” David Sheeler, senior executive vice president of Freedom Mortgage Corporation, said on one of the MBA panels. Servicers should seek out ways for “easing the burden on the customer,” he added. At another panel, Sacha Rosenthal from Freddie Mac spoke about pre-foreclosure sales, asking “how do you educate early and often?” He advocated that greater effort needs to be made to have a better conversation with the borrower.
Financial Literacy
The Mortgage Note just published an article on the need for financial education to help prevent foreclosures. Lenders started 11% more foreclosures this February than the same month in 2023. Donna Schmidt was interviewed, saying that borrowers are “spending more than they are making.” She pointed out also that many delinquent borrowers have received multiple loss mitigation options, which has depleted any equity they had. Financial counseling is not required, so home retention options often function as nothing more than a band aid.
The article ended referring to a paper from the American Economic Association, who found that “borrowers with high levels of financial literacy are 60.3% less likely to suffer from mortgage stress than borrowers with low levels of financial literacy.” The potential for high levels of borrower stress does not apply just to the foreclosure process but the whole loss mitigation process. Homes provide a crucial source of security and safety, which is threatened during periods of delinquency.
Security and Stability
The Center for Housing Policy argued that stable and affordable housing serves an important role in our physical and mental health. There are “linkages between home foreclosures and an array of negative physical and psychological health problems, including hypertension, heart disease, anxiety, and depression.” The fear of losing one’s home can also affect your sense of belonging in the community.
Lenders and servicers do not simply offer loss mitigation options to struggling borrowers. They serve an incredibly important and noble role by helping to create stable and secure communities. They help people retain a critical source of their psychological and physical stability. Educating delinquent borrowers during the loss mitigation process can mitigate their stress by better informing them of the processes, their options, and any needed financial advice.
