In former Consumer Financial Protection Bureau Director Richard Cordray’s third installment of his three-part HousingWire blog series, Cordray recalls the challenges and disorganization of the 2008 housing crisis. He calls for vigorous oversight from state officials and government agencies including the CFPB, the Federal Housing Finance Agency, and the Treasury to prevent a repeat of the problems that arose.
While Cordray is correct that government regulation can help streamline the loss mitigation assistance that will be offered to the 4 million homeowners who are currently in a forbearance, he neglects to take note of the critical role that the nonprofit housing counseling industry played as trusted advisors in the last crisis.
Efforts from housing counselors included submitting complete packages to address the paperwork pain point, assisting with proactive outreach to help servicers gain trust from consumers and explaining loss mitigation options to homeowners. They also advocated for, supported and added efficiencies to the inefficient loss mitigation process.
According to the Urban Institute, borrowers with counseling in the 2008 crisis were 67% more like to be current after nine months than homeowners without counseling. Having a trusted advisor – for example, an unbiased housing counselor – also made it more likely that an at-risk borrower would respond to loss mitigation efforts.
It is crucial for us to recall these findings right now, as misinformation is already circulating regarding critical items, such as who is or is not eligible for options like forbearance.
Collaboration between servicers, nonprofit housing counseling agencies, and government officials are equally as essential as they were last time. In the 2008 crisis, the nonprofit housing counseling industry advocated for additional critical technology solutions, such as the ability to scan and upload documents rather than faxing, which though may sound simple today, was a complete nightmare in 2008. We must revive the practice of efficiently sharing documents between housing counselors and servicers as soon as possible.
I am relieved by how quickly the mortgage finance industry has responded to the needs of homeowners during the coronavirus shutdowns and their willingness to modify their approach if need be. However, I have no doubt that housing counseling organizations will be – and should be – called upon again to address this new crisis. I hope the industry remembers what history has taught us so that if a foreclosure crisis of this magnitude does happen again, we are ready to address it immediately.