Sweeping federal budget cuts have precipitated a significant employment crisis—and that means an imminent uptick in mortgage delinquencies and foreclosures. An increase that, with the right proactive approach, can be prevented.
“People are scared,” states Marcia Griffin, CEO of HomeFree-USA, a DC-based homeownership advocacy and credit counseling organization with national reach. “We must come together to prevent as many foreclosures as possible.”
As of mid-April, over 55,000 people have lost their jobs due to federal layoffs, with another 76,000 employee buyouts and 145,000 reductions planned, affecting about 12% of the 2.4 million civilian federal workforce (NY Times). In total, over 280,000 federal workers and contractors will be impacted across 27 agencies (Government Executive).
The repercussions of these reductions extend beyond government staff to include employees of nonprofits reliant on federal funding. At least 14,000 nonprofit jobs have been lost since January due to federal budget cuts (The Chronicle of Philanthropy).
Alfreda Williams, Director of Homeownership at HomeFree-USA, confirms a surge in calls from distressed homeowners due to the layoffs. “Servicers need to continue to lead by addressing the impact of the economy… and meet people where they are,” she emphasizes. She advises mitigating loss by supporting these homeowners—before they become delinquent.
Recommended actions for mortgage servicers:
- Communicate proactively with affected borrowers.
A few words go a long way toward reassuring distressed homeowners that help is available.
- Provide guidance with mortgage statements and on online portals.
- Outline clear steps for homeowners facing financial hardship.
- Take measures to protect their credit.
“We’ve got to do something to protect the people who have clearances… but were laid off due to no fault of their own,” Williams advises. Lost security clearance due to an adverse credit event can cause delays and obstacles in the borrower’s ability to find new employment.
- Assess appropriate reporting options with the credit bureaus, particularly for those with hard-won security clearance.
- Refer delinquent borrowers to a counseling organization. Working with a counselor can help reinstate a borrower’s security clearance if lost, showing responsible actions taken.
- Provide access to support and resources.
Homeownership advisors and credit counseling partners can ask questions you can’t, bear the brunt of homeowners’ panic so you don’t have to, and steer borrowers toward appropriate preparations to make before reaching out to you.
- Supply a list of local housing and credit counseling agencies.
- Position counseling organizations as a neutral third-party liaison, increasing the effectiveness and ease of servicer-borrower interactions, especially as anxiety runs high.
- Create outside-the-box solutions that meet individual circumstances.
“Homeowners are not necessarily asking you to make the payment more affordable,” Williams notes. A traditional loan modification may not be appropriate. “These people are asking for another chance to remain in their home,” she concludes. Credit counselors assess the borrowers’ situation, considering factors like severance packages and budget, to lay out a clear plan for the affected homeowner.
- Consider solutions outside loan modifications, which may be disadvantageous if the borrower has a low rate compared to today’s standards.
- Offer limited unemployment forbearance options and payment plans to restore missed payments that allow responsible borrowers to stay within their means and keep their homes.
- Collaborate with counseling organizations to generate creative solutions, and leverage their boots-on-the-ground understanding of the nuances of your homeowners’ circumstances.
- Consider solutions outside loan modifications, which may be disadvantageous if the borrower has a low rate compared to today’s standards.
Act now. Take the next step.
Engage with homeowners before delinquency occurs, and partner with housing and credit counseling organizations to provide timely information and support to homeowners.
Visit our website for more information and to register for an upcoming webinar on mitigating foreclosure risks.
“This is a national crisis,” Williams aptly concludes. By taking compassionate, proactive steps, mortgage servicers can play a pivotal role in helping homeowners navigate these challenging times—and earn a grateful client for life.