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"Foreclosure Avalanche" Prompts Servicer Survey

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In a conference call/press conference on Thursday, the Conference of State Bank Supervisors (CSBS) released its first report on loss mitigation efforts as reported by 13 major residential mortgage servicers.

Iowa Attorney General Tom Miller explained that the report grew out of a concern dating back to last summer that the nation was facing a "foreclosure avalanche." The AG said at that point the bank regulators and attorneys general who were expressing that concern were looking at the impact of individual foreclosures on the family and the community and had no idea of the collateral damage that would later emerge from the poor underwriting standards. They were, however, convinced that the avalanche could be mitigated by enlightened self interest. Such self-interest should come together where the borrower could afford to make payments in an amount that the owner of his loan could afford to accept.



A State Foreclosure Prevention Working Group was formed and met with 20 of the largest servicers of subprime loans. Most of these servicers agreed that loss mitigation made a lot of sense and signed on to the "enlightened self-interest" proposition. However according to Mark Pearce, North Carolina Deputy Commissioner of Banks, there was an immediate disconnect between what servicers said they were doing to ameliorate the problem and what the Working Group was hearing from borrowers and non-profits seeking to help those borrowers so the Group moved to collect data directly from servicers to verify what was going on. One immediate need was develop a metric of definitions so that "loss mitigation" or "repayment plan" meant the same thing to all players.

The Group is now collecting data from 13 servicers representing 58 percent of the subprime market. Six servicers have either declined to provide information or are in negotiations to work out confidentiality concerns. Chase and Wells Fargo have declined to participate based on advice from the Office of Comptroller of the Currency which OCC has refused to change and Washington Mutual along with Chase have refused to provide data because of their participation in the Hope NOW Alliance

While the report stated that many of the servicers participating in the data collection had not yet set up the kinds of tracking systems that would allow data to slice and dice information too finely, (e.g.was the loan modification an interest rate modification, a term modification, or a reduction in the amount owed?) this first report, containing data from last October, did contain some interesting findings.

  1. Seven out of ten seriously delinquent borrowers are not on track for any loss mitigation option.

    The lack of contact between servicers and debtors is a major problem. In spite of creative outreach efforts and increased staffing, there is a large gap between the numbers needing help and the number receiving it. The data suggests that a rising number of loan delinquencies are swamping the increase in loss mitigation efforts.

    One reporter at the press conference stated that these numbers are the mirror opposite of figures released that morning by Hope NOW that stated that 70 percent of delinquent homeowners were being reached by servicers. Conference participant refused to respond saying that they had not had a chance to look at the Hope NOW data.
    '
  2. Servicers have increased their efforts to reach and work with borrowers.

    For those homeowners who are in contact with their servicers 45 percent are working toward a loan modification. Servicers are also increasingly willing to work out longer-term changes to the loan rather than short-term repayments or forbearance agreements.
    '
  3. Payment resets on hybrid ARMs have not yet been a driving force in foreclosures.

    The results indicate that a significant percentage of subprime adjustable rate loans go delinquent before the first rate reset indicating weak underwriting or mortgage fraud (i.e. misstating income or owner occupancy status) . That so many homeowners are already struggling before their rates reset gives increased urgency to addressing hybrid ARMs before those payment shock triggers additional foreclosures.
    '
  4. Homeowners are helping themselves.

    The October data showed that most of the delinquent loans resolved that month occurred when the homeowners were able to catch up on back payments. "As of October, actions by homeowners, not servicers, have prevented the most foreclosures."
    '
  5. The refinance option has nearly evaporated.

    Where what the Working Group called "serial refinancing" was the primary way that the mortgage industry and homeowners managed delinquencies in the past, the report stressed that the industry will not be able to refinance its way out of the current crisis unless there are dramatic changes in available loan products or home prices.

The October data looked at 205,270 instances of loan mitigation outcomes closed that month to determine the methods used. Reinstatement or account brought current accounted to 73.33 percent of those outcomes, i.e. homeowners helping themselves as stated above. Loan modifications and repayment plans made up just under 10 percent each of the total and refinancing or paid in full (which could be from a full payoff home sale) 4.2 percent. Short sales, deeds in lieu of foreclosure, and forbearance made up only 2 percent each of the outcomes.

The report and those participating in the conference call touched briefly on the need for "fast track" modifications. This would be a system which would allow loans to be dealt with by type of loan or with automated loan evaluation systems. An example of the fast track concept would be the current loan rate freeze put in place recently where the whole category of loans that are about to reset but are not delinquent are identified as a cohort that can be helped with an almost one-solution-for-all movement. The report states that "A continued insistence that each delinquent loan needs intensive one-on-one attention will hamstring efforts to prevent large numbers of foreclosures. As a result, millions of homeowners will lose their home unnecessarily, impacting not only those families, but their neighbors and communities as well."


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uncle teddy
on Thu, Feb 7 2008 8:00 AM
having worked many short sales and dealing with a varity of mitigators it seems like they hav either no interest or no incentive to realize the effect their efforts or lack of has on these people,i have observed that many investors are losing also and they make the market but are totally ignored. ihave had many deals turned down after getting fair mkt value only to puchase later as reo at 50% less ,it would appear that someone is asleep at the wheel and the lenders care nothing except bottom line and no hardship is considered i believe the right hand (mitigators) and the lefthand(reo dept) should compare notes and ### s maybe look at bpo suppliers as looking to gain listing later?????? also any one can be a bpo agent but it is a science thank you and lets work together to help people it will come back in many ways uncle teddy
Douglas M. Thomson Sr.
on Fri, Feb 8 2008 8:00 AM
The report shows an unwilliness to lower interest rates. It also shows that the banks had nothing to do with the loans being brought current. It is so simple to see that not a thing has changed. At the expense of our economy the banks have continued to profit. Most people facing forclosure can not bring their loans current. As for refinancing they no longer qualify. Either the credit is no longer good or the property is no longer worth enough to qualify for a new loan. Also many of the original loans have been sold multiple times as banks close or bankrupt. My advise is to lower interest rates on existing loans. The people who are willing to stay in the home and are able to negotiate a reasonable and affordable loan term will. Ignor the fact that the property is worth less then they owe and care more about staying in their home. Lenders are becomming more and more like wolves taking advantage of the insurance companies, government grants and continue to waste so much time that homeowners end up walking away. Lets not forget that these tax paying citizens will not be able to use credit and will not pay property taxes. They most likely will end up seeking some type of government aid. This is a loose loose situation. It is time that the government step in and organize a task force that looks closely to see that banks actually lower interest rates and are working to help those asking for help. I have been trying for 18 months. All that happens is they waste time. Ask repeatedly for your current financial situation and then not change anything. This is no laughing matter. We will be in a DEPRESSION NOT RECESSION SOON if the banks continue to expect people to pay these high interest payments. People will simply walk away leaving their credit upside down and bankrupt. This country needs to wake up and take back the control we lost. The banks and their over paid officers decided to take advantage of the unsuspecting public. By creating unregulated and unqualified loans. If the banks dont cooperate with the public. The public will walk away leaving all their debt unpaid. Who will pay? NO ONE!
CFSolutions
on Sun, Feb 10 2008 8:00 AM
There is only one solution for the current crisis: Banks should realise that properties were refinanced or sold at an average of 30 to 40 percent above real value. Greed was the primary cause of the financial mess. In some areas in Florida, the mortgage payment is not the problem. Taxes and insurances are. I just came back from Port Saint Lucie, Florida, a town that just 2 years ago was one of the top gowing cities in the country. I drove around town and just about every other house is on the market. Banks can eather lose 100% of the loan or just 30%. Take a 30 year loan on a property tha has a loan balance of 300,000. According to the properties sold in that area, this property will only be appraised at $200,000. Take that amount, apply a 6.75% interest and use a 40 or 50 year amortization and now that borrower can afford the payment. Still we need to solve the tax and insurance problems in that area. If you don't do that, the city of Port Saint Lucie will have to file Bankruptcy.