CRL Sees Foreclosure Crisis Spreading
A consumer group study finds that 1.5 million subprime mortgage borrowers have lost their homes to foreclosures, and another two million are at risk.
The Center for Responsible Lending study also claims that foreclosures are "rapidly spreading beyond subprime mortgages."
The center noted that a recent Credit Suisse study concludes that one in six outstanding mortgages are currently at risk of foreclosure.
According to the center, loan modifications "continue to fall behind the rising rate of defaults." The consumer advocacy group also claims that many of the modifications done to date are "inadequate," causing a high rate of redefault. "Because the foreclosure crisis is at the root of this recession, the continuing flood of foreclosures stymies any chance of real economic recovery," said CRL president Michael Calhoun.
The data are in contrast to Hope Now's figures, which have shown a steady increase in loan modifications. Hope Now projected in December that servicers would prevent 2.2 million foreclosures in 2008 through loan workouts, which include both repayment plans and modifications. About 950,000 of the total consisted of modifications.
Hope Now, an alliance of servicers, counselors and investors, also said that it is getting an 18% response rate to letters sent from Hope Now to at-risk borrowers, which is six times the industry's average response rate when servicers send their own letters.
But regardless of whose numbers seem most reliable, it's clear that the challenge of dealing with a huge volume of defaults isn't going away anytime soon. The Mortgage Bankers Association reported in its third-quarter delinquency survey that the foreclosure start rate on subprime, adjustable-rate mortgages was 6.47%.
The MBA projects that 2.2 million foreclosure actions were started in 2008. MBA chief economist Jay Brinkmann warned that economic factors such as job losses are adding to the problems that emerged because of overheated housing markets and weak underwriting.
"Absent a recession, the 2009 number would likely have fallen by several hundred thousand but the effects of job losses and general economic deterioration make the 2009 outlook worse, particularly if mortgage problems become more widespread," Mr. Brinkmann said in a news release.