Concerted efforts designed to prevent unnecessary foreclosures have reduced the amount of mortgage redefaults, says a group of state attorneys general and banking regulators. But the group also expressed concern that foreclosures continue to outnumber loan modifications.
According to a report issued by the State Foreclosure Prevention Working Group, a multi-state coalition, recent loan modifications are in fact performing better. Loan modifications may include reduced interest rates and other changes that result in smaller payments -- and in some cases, lower outstanding balances.
"Some analysts have predicted redefault rates as high as 75%, but today's report paints a brighter picture of the future," Washington Attorney General and working group member Rob McKenna said in a statement. "The newer modifications are holding up better, with fewer borrowers redefaulting."
Despite the progress noted in the report, McKenna says he's concerned that 6 out of 10 seriously-delinquent borrowers are not getting any help.
The report tracks loan modifications made by nine mortgage companies who were servicing 4.6 million loans as of March 2010. Banks -- which are regulated by federal agencies -- are not included in the report. Compared to loans modified in 2008, borrowers whose loans were modified in 2009 were 40% to 50% less likely to be seriously delinquent 6 months later.
The majority of loan modifications (89%) tracked by the working group for the first quarter of 2010 showed some reduction in payments, and nearly 78% lowered the monthly payment by more than 10%. Redefault rates were lower for loan modifications that reduced the principal balance by more than 10%.
However, only 1 in 5 modifications reduce the loan amount, and the vast majority increase the loan balance by adding servicing charges and late payments.
"When housing prices are low, the lender is going to take a loss if that home is foreclosed and surrounding home values will ultimately be impacted," McKenna said in a statement. "The underlying theory of a loan modification is to enable the lender to get the same value out of the home as if it had been foreclosed. The lender still takes a loss through the reduction of interest or principle. But the net result is better for the community and the borrower because, of course, a house is more than just an asset. It's a home."
The Office of Thrift Supervision and the Office of the Comptroller of Currency reported a similar reduction in redefault rates in its Mortgage Metrics Report for the first quarter of 2010. Of the 590,000 modifications made in 2009, nearly 52% were still current (i.e. homeowners were making payments on time) at the end of the first quarter of 2010, the agencies reported. By comparison, only 27% of loan modifications made during 2008 were still current.
McKenna and his office have trying to help homeowners by cracking down on unethical lenders and fraudsters, pushing for the modification of unaffordable mortgages, urging changes to bankruptcy rules, and seeking state-federal collaboration on bank regulation.
The Washington Attorney General's Office also granted $920,000 of its Countrywide/Bank of America settlement payment
for local foreclosure prevention programs that provide counseling and pro bono legal services.
The State Foreclosure Prevention Working Group consists of 12 state attorneys general (Arizona, California, Colorado, Florida, Illinois, Iowa, Massachusetts, Nevada, North Carolina, Ohio, Texas and Washington), bank regulators for New York, North Carolina, and Maryland, and the Conference of State Bank Supervisors. The group was founded in 2007 and has issued four previous reports.
The Center for Responsible Lending-a non-profit research and public policy group-released a study, this week, focused on the racial makeup of foreclosures in California. It found that Latinos have experienced notably higher foreclosure rates than non-Hispanic borrowers in the state.
In what’s being called a “first of its kind,” the report, entitled Dreams Deferred: Impact and Characteristics of the California Foreclosure Crisis, analyzed more than half a million statewide cases of foreclosures and found that the vast majority-48%-has been on Latinos. Whites totaled 35%, African Americans 8% and Asians 6%.
Read more at SFChronicle
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