Finally, it appears that something is working to help save homes and stop foreclosures.  In a report released on Monday, NeighborWorks America revealed that a homeowner who works with a housing counselor is nearly two times more likely to avoid foreclosure than those that receive no counseling.

NeighborWorks America is the administrator of the National Foreclosure Mitigation Counseling Program (NFMC) established by the federal government in 2008.  The first two years of the program were analyzed by the Urban Institute of Washington, D.C, and revealed the value of counseling intervention in not only reducing the number of foreclosures for homeowners who were counseled, but in mortgage modification.  Homeowners who worked with a counselor to get their mortgages modified ended up with reductions averaging $555 a month, compared to savings of $288 for those that did not work with a counselor. 

Another benefit of working with a counselor is that the re-default rate is lower.  After receiving a loan modification 49% of non-counseled borrowers re-default after 8 months, compared to 36% of those counseled.  This still seems high, but overall the report clearly demonstrated the value of counseling as 55% of those in foreclosure that sought counseling were able to cure the foreclosure and save their home within 12 months.

The report did not indicate if the lenders involved in the modifications reduced principal balances or simply modified rate and term.  And while counseling may be useful in many cases, I still believe that principal reductions are the only real tool to stop the foreclosure flood as counseling does not address the issue of strategic default.

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