The Hope Now Alliance, a coalition of 25 of the largest mortgage
servicers in the country, released a progress report on Monday on its operations
to date. The
Alliance came in to being last fall at the urging of Treasury Secretary
Henry Paulson to expedite resolution of the growing number of mortgage loans
in default or faced with potentially catastrophic rate resets.
One piece of very good news in the report was the status of rate resets. Referring
to a program called "Fast Track" which was announced in December that is particularly
geared to expedite modifications for loans facing reset; the report
said that "Interest rates have declined dramatically in the last two
months. Most "Fast Track" preset rates now are not much higher than post-reset
rates. Thus, because of declining rates many homeowners are receiving new rates
that are not much different [than their old rates.]"
For example, the drop in the LIBOR (London Inter-Bank Overnight Rate) of 200-250
basis points since the end of Dec. has reduced the average payment shock on
subprime loans. The average subprime ARM reset is 5.76 plus the 6-month LIBOR
which is currently 3 percent; thus the current subprime ARM reset is occurring
at an average of 8.76 percent. This contrasts with an average reset of 11.25
in December. These resets are expected to decline further in the coming months.
The Alliance announced that, since it began operations in July, 2007 it has
been responsible for a total of 1,035,000 loan workouts which
include 758,000 repayment plans and 278,000 loan modifications. A modification
occurs any time any term of the original loan contract is permanently altered
- through a reduction in rate, forgiveness of a portion of the principal, or
change in the maturity date. A repayment plan allows the borrower to become
current and catch up on missed payments without any substantial or permanent
alteration of the loan terms.
Of the 1 million plus loan workouts, 638,000 of the loans involved were subprime
and of those 443,000 were repayment plans, 195,000 were modifications.
The number of modifications as opposed to repayment plans has been rising steadily.
In the third quarter of 2007 19 percent of all workouts were modifications;
in the fourth quarter it was 35 percent and in January 50 percent of the workouts
were modifications - 45,320 modifications vs. 48,155 repayment plans.
Loan modifications rose 16 percent in January over the previous months.
Delinquency rates are still rising. Prime loans that are 60
days or more in default rose from 1.5 percent of outstanding mortgages to 1.7
between December 2007 and July 2008 while subprime loans increased from 13.5
percent to 14.1 percent during the same time period.
Data for the report came from 18 servicers covering almost 2/3 of industry.
Here is the summary data from New HOPE for the third and fourth quarter of
last year and 2008 year to date.
Loan Modifications: July 2007 - January 31, 2008
Foreclosure Sales: July 2007 - January 31, 2008
|Completed Foreclosure Sales
In a comment on the report, Jonathan L. Kempner, President and Chief Executive
Office of the Mortgage Bankers Association (MBA) stated:
"The latest HOPE NOW numbers demonstrate the sheer volume of borrowers
who are being helped by servicers across the country. It's imperative to remember
that lenders have every incentive to work with borrowers to help them avoid
foreclosure wherever and whenever possible. MBA continues to urge all borrowers
to respond to their lenders' outreach efforts or to call the HOPE Hotline."
In related news, Federal Reserve Chairman Ben S. Bernanke
called on Tuesday for even more assistance for those homeowners in danger of
falling into foreclosure.
Speaking before a banking group in Florida the Chairman said that even with
the current efforts on the part of the government and the mortgage industry
to help homeowners, the pace of foreclosures and delinquencies are likely to
rise for a while longer.
"This situation calls for a vigorous response," Mr. Bernanke
said. Reducing the rate of preventable foreclosures would promote economic stability
for households, neighborhoods and the nation as a whole. Although lenders and
servicers have scaled up their efforts and adopted a wider variety of loss-mitigation
techniques, more can, and should be, done."
The Fed Chair made what is sure to be a controversial suggestion; that the holders
of mortgage loans reduce the principal balance of the loans. With little or
no equity in their homes, he said, a borrower does not have much financial incentive
to keep the house.
With low or negative equity in their home, a stressed borrower has less ability
- because there is no home equity to tap - and less financial incentive
to try to remain in the home, he said. He stressed that such more permanent
changes in the loans might have more impact that temporary solutions such as
rate freezes or repayment plans and might provide greater recovery to lenders
in the long term.