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April 22, 2008

Miller: Foreclosure Prevention Efforts Falling Short of Need

State Foreclosure Prevention Working Group issues second report on performance of subprime mortgage servicing companies.

Industry measures to keep homeowners out of foreclosure are barely keeping pace with the rising rate of homeowners in trouble, according to Iowa Attorney General Tom Miller and other state officials. “The number of borrowers in loss mitigation has increased,” Miller said, “but the gains have been matched by an increasing level of delinquent loans.”

The State Foreclosure Prevention Working Group, a group led by Miller of state attorneys general and banking regulators working to prevent home foreclosures, issued the report Tuesday. “We conclude that efforts have increased but are falling far short of the need to address the foreclosure crisis and prevent millions of unnecessary foreclosures,” Miller said.

The Group issued its second “Analysis of Subprime Mortgage Servicing Performance” Tuesday, based on data collected from subprime mortgage servicers for the period October 2007 through January 2008.  The group’s first report was issued February 7.

“The collective efforts of servicers and government officials to date have not translated into meaningful improvement in foreclosure prevention outcomes,” the report said, despite widely-publicized campaigns to encourage homeowners in trouble to seek help, and initiatives by servicers to “fast-track” loan modifications.

Major findings of the Foreclosure Working Group include:

  • Seven out of ten seriously delinquent borrowers are still not on track for any loss-mitigation outcome. The number of borrowers in loss mitigation has increased, but it has been matched by an increasing level of delinquent loans; thus, the relative percentage has remained about the same. “Given creative servicer outreach efforts and increased public awareness of the HOPE Hotline during this time period [Oct.-Jan.], this large gap suggests a more systemic failure of servicer capacity to work out loans,” the report said.
  • Data suggests that servicers’ loss-mitigation departments are severely strained in managing the current workload. The report noted that almost two-thirds of all loss-mitigation efforts started are not completed in the following month. “We are concerned that servicers overall are not able to manage the sheer numbers of delinquent loans,” the report said. Data suggest that “the burgeoning numbers of delinquent loans that do not receive loss-mitigation attention are clogging up the system on their way to foreclosure,” the report said. “We fear this will translate to increased levels of vacant foreclosed homes that will further depress property values and increase burdens on government services.”
  • Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification. The Group said such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans. Many servicers are replacing their use of repayment plans in favor of loan modifications.“

Progress is being made, but there is a long way to go,” said Iowa Attorney General Tom Miller, a founder and leader of the State Foreclosure Prevention Working Group. “We still see a tremendous gap between the need for loan work-outs and the options in place today.”

The State Working Group said it believes “more robust approaches to avoid preventable foreclosures are necessary.”

The Group said servicers, investors and state officials should work together on:

  • Developing a more systematic loan work-out system to replace the intensive, individual, “hands-on” loss-mitigation approach. “Initial efforts to develop systemic approaches are far too limited to make a difference in preventable foreclosures,” the report said. “Without a systematic approach, we see little likelihood that ongoing efforts will make a serious dent in the level of unnecessary foreclosures.” The State Working Group said it “will continue to work with servicers to promote systematic solutions to modify loans in a more streamlined and efficient manner.”
  • Slowing down the foreclosure process to allow for more work-outs. “Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure,” the report said. Many states have enacted or are considering such measures, the report noted.

The State Working Group also encouraged the federal government to develop innovative approaches that recognize the extent and scale of the foreclosure crisis.

The State Foreclosure Prevention Working Group began as a cooperative dialogue of state officials and mortgage servicers in September 2007. Since October 2007, the Working Group has been collecting data from the largest subprime mortgage servicers, with 13 of the largest 20 servicers participating, representing approximately 60 percent of subprime mortgage loans serviced.

The state officials noted that some national banks have refused to provide servicing data to the State Foreclosure Prevention Working Group, with two banks citing the advice of the Office of the Comptroller of the Currency (OCC.) On February 29, the Comptroller announced that some of the largest national banks will be providing mortgage servicing data to the Comptroller on a monthly basis.

The State Working Group encouraged the Comptroller to aggregate and publish such national bank data to complement the work of the States and provide a complete view of trends and effectiveness of efforts to avoid foreclosures.

The State Foreclosure Working Group is led by Iowa Attorney General Miller and representatives of the Attorneys General of 11 states (Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas), two state banking departments (New York and North Carolina), and the Conference of State Bank Supervisors.


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