New research by the STRATMOR Group (sponsored by Outreach Financial Services) suggests that providing holistic financial counseling to borrowers who are at risk of default and foreclosure can not only prevent foreclosure, but also can reduce re-default rates for borrowers. According to the November 2011 study, holistic financial counseling could reduce losses on a 10,000 file portfolio by as much as $71.5 million.
According to the recent report, while traditional borrower counseling in default servicing focuses mainly on the monthly mortgage payment, integrating holistic financial counseling addresses the “entire spectrum of a borrower’s financial picture,” including lifestyle decisions. Holistic financial counselors help borrowers assess all the factors that go into monthly spending, including credit card debt, car payments, and discretionary spending. According to the new white paper, the loan modification model of using credit counselors to work with homeowners on lifestyle savings will reduce their monthly spending by an estimated $300 per month. When combined with a prospective $550 reduction on the monthly mortgage payment from the sample loan modification, homeowners realized approximately $850 per month in freed up cash flow, sharply lowering the predictive foreclosure and re-default rate for borrowers who initially cured their loan through a loan modification.
