Delinquent Loans Seriously Outpacing Foreclosure Mitigation Efforts, Says State Foreclosure Prevention Working Group
Six of Ten Delinquent Borrowers are not Involved in Loss-Mitigation Process
January 20, 2010
New York N.Y.: Richard H. Neiman, Superintendent of Banks for New York State, as part of the State Foreclosure Prevention Working Group, called for stepped-up foreclosure prevention efforts to help stem the rising tide of delinquent loans and foreclosures.
The new Report of the State Working Group, a collection of state attorneys general and banking regulators, notes that six out of ten seriously delinquent borrowers are not even involved in loss-mitigation efforts – and that borrowers who are involved in loss-mitigation and foreclosure prevention face a process that is seriously backlogged. [Go to Report.]
In a national news conference call on Wednesday, led by Iowa Attorney General Tom Miller, a leader of the State Foreclosure Prevention Working Group, stated that despite commendable federal and state efforts, foreclosures are still a serious issue.
Superintendent Neiman, who joined Miller on the call along with Mark Pearce, North Carolina Chief Deputy Commissioner of Banks, pointed out particular concerns with the Treasury Department’s Home Affordable Modification Program (HAMP).
“About 450,000 homeowners currently have HAMP trial modifications and have demonstrated a willingness and ability to make timely payments for at least 3 months. Now unfortunately and very alarmingly, these same homeowners face the prospect of foreclosure this January 31st, strictly on account of documentation issues,” said Neiman.
“As we recommend in our report, I believe Treasury must streamline the paperwork process, by eliminating redundant document requirements and allowing servicers more flexibility to accept alternative documents where appropriate,” continued Neiman.The State Foreclosure Prevention Working Group, which consists of 12 state attorneys general (AZ, CA, CO, FL, IL, IA, MA, NV, NC, OH, TX, WA), bank regulators for NY, NC, and MD, and the
Conference of State Bank Supervisors, was founded in 2007 and has issued three prior reports (all four reports can be found at http://www.banking.state.ny.us/dep.htm#reports).
Superintendent Neiman urged New York State residents at risk of foreclosure to contact the Banking Department at 1-877-BANK-NYS (226-5697) or visit http://www.banking.state.ny.us/hetp.htm for information on non-profit housing counselors in their area.
Findings of the Working Group Report include (excerpts):
- Six of ten seriously delinquent borrowers are not even involved in loss-mitigation efforts. The total number of struggling homeowners not on track for any foreclosure prevention assistance continues to grow. HAMP has helped slow down the foreclosure crisis, but current efforts have been insufficient to get ahead of the foreclosure problem.
- Both loss mitigation and foreclosure efforts appear to be backlogged. The average time to complete a loan modification for some servicers is over six months.
- Most modifications result in payment reductions, but principal reductions remain rare. Given the correlation between negative equity and likelihood of default, the failure to write down principal in connection with loan modifications is a glaring flaw in current efforts.
- Prime loans are increasingly driving the rising delinquency rates. The foreclosure problem is broad-based and not isolated to poorly-written or exotic loan products.
The Working Group report said the federal Home Affordable Modification Program, or HAMP, has led to offers of loan modification assistance to over 1.1 million homeowners, but the report says early indications are that servicers have been unable to implement the program effectively, and many homeowners with trial modifications are not yet qualified to transition to a permanent loan modification.
“To be sure, we would be in a much worse place without these efforts,” the States said, but “these efforts must be improved.”Recommendations of the Working Group Report include (excerpts):
- Servicers should suspend foreclosure proceedings on any loan involved in the loss-mitigation process. In some cases, homeowners have lost their homes while being told they are being considered for a loan modification. This is unacceptable.
- Loss-mitigation programs must be improved to prioritize principal reduction in areas of significant home price declines. Loan modification programs that rely on monthly payment reductions alone will have limited success in creating sustainable homeownership in states where a large percentage of mortgage loans are significantly “underwater” (e.g., loan balance is greater than the home’s market value.)
- Servicers should pay particular attention to reforming payment-option ARM loans. If unaddressed, the payment shock on these loans, coupled with the high proportion that are significantly “underwater,” will push a significant portion of payment-option ARM loans into foreclosure.
- The HAMP program must increase transparency and reduce paperwork in order to reach its potential. While the Treasury Dept. has made positive steps in reducing paperwork burdens, we believe more streamlining is necessary to reduce burdens on both servicers and homeowners.
- States should consider expanding homeowner counseling programs or implementing temporary foreclosure mediation programs or other such measures. Given the numbers of homeowners facing foreclosure or likely to face foreclosure in the next 12-24 months, it is likely that many will fall through the cracks of even the best-implemented system for working out mortgage loans.
- Both servicers and Treasury should provide better options to keep unemployed homeowners in their homes. Unemployment and loss of income are key catalysts to a mortgage default. While unemployment insurance partially fills a short-term gap in income from job loss, unemployed homeowners face significant hurdles in keeping their homes.
The New York State Banking Department is the regulator for all state-chartered banking institutions, virtually all of the United States offices of international banking institutions, all of the State’s mortgage brokers, mortgage bankers, check cashers, money transmitters and budget planners. The aggregate assets of the depository institutions supervised by the Banking Department are more than $2.4 trillion.In addition to regulating banking institutions, the Banking Department is active in informing and educating all New Yorkers on banking matters. To contact the Banking Department, please call 1-877-BANK-NYS or visit our Web site at www.dfs.ny.gov