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How Nonprofit Counseling Agencies Work

Nonprofit housing counseling agencies work closely with lenders, and with the lenders’ representative companies, which are called mortgage servicers. Major lending entities and servicers fund many of these counseling agencies, expecting that they will bring down the overall number of foreclosures. For that reason, counselors working for these lender-funded agencies are motivated to keep you in your home—and keep your mortgage payments flowing into the lenders’ coffers. Some agencies receive as much as $2,000 a case for each case where a foreclosure is prevented.

In fact, lenders seem to be asking these counseling agencies to reach out to homeowners in the early stages of default. The lenders know that the counseling agency is more likely to get through to you—more than a few homeowners don’t even pick up the phone if caller ID tells them it’s the mortgage servicer calling. Similarly, they throw away envelopes with the servicer’s name on them.

Fortunately, using one of these counseling agencies can be advantageous to you, the borrower. If you try to work with the servicer directly, you might be put on the back burner—or referred back to a counseling agency. Or your offer for a workout might be rejected out of hand by the servicer even though the same offer coming from the counseling agency might get more reasoned consideration. The counseling agencies frequently have access to special telephone numbers and staff when communicating with servicers and special workout personnel who will talk to counselors but not directly to borrowers. In other words, as a practical matter, you may be forced to go through a counseling agency if you want to do business with a mortgage servicer or lender.

Another reason to go through a housing counselor is that you’ll probably get more helpful advice than you would if you went directly to the mortgage servicer. It’s been pointed out that mortgage servicers make less money by keeping you in your house than they do by booting you out. This is because they charge numerous fees associated with foreclosures (such as attorney fees, inspection fees, and default fees) but are paid little or nothing by the lender if you remain in the house.

Whether you are using a counseling agency or doing your own negotiating, the main issues are:

• how far the lender will go to avoid foreclosing, and
• how appropriate the final workout is for you and your family.