CA Survey Criticizes Lenders on Modification Efforts

A survey by the California Reinvestment Coalition here found that "despite what they publicly state," lenders operating in California are not trying to help borrowers modify their loans and avoid foreclosure.

Instead, most borrowers are pushed to foreclosure or short sales. Up to 57% of the surveyed counselors reported foreclosure and 33% reported short sale "as the most common outcomes for borrowers who cannot afford to pay their mortgages," CRC said, leading to more foreclosures in the state.

"The survey findings are distressing. Until lenders begin to deal honestly with this crisis and act in earnest, thousands upon thousands of Californians will suffer from foreclosure and the forced sale of their homes," said CRC associate director Kevin Stein. "The consequences will be devastating."

The survey analyzed data from 33 of California's 80-plus mortgage counseling agencies certified by the Department of Housing and Urban Development to assist borrowers at risk of foreclosure. It notes that as lenders began foreclosure proceedings on nearly 60,000 Californians in August alone, beyond individual duress, it has caused decreases of property values in related neighborhoods, incurred higher costs and lower tax revenue for local governments, and weakened California's broader economy.

Approximately two million loans are facing rising interest rate resets in the U.S. over the next two years, including 500,000 Californians, who may be at risk of foreclosure, Mr. Stein said. In August, counselors who participated in the survey assisted about 10,000 customers, CRC said, and most reported "lenders are not doing enough to help their clients."

According to CRC, other data confirm this finding. For example, Moody's recently released the results of a survey of the modification practices of subprime mortgage servicers on loans to reset either in 2007 or 2008. It reviewed data from 16 servicers with a total servicing volume of about $950 billion, or roughly 80% of the market, which showed that most servicers had only modified approximately 1% of these loans.

"Most lenders are difficult to reach and in many cases cannot seem to modify loans," said Lori Gay, executive director of Los Angeles Neighborhood Services. "It is important for lenders to work with borrowers and nonprofit housing counseling agencies to modify loans and preserve homeownership in California."

CRC reports that borrowers who have the option to negotiate with their loan servicer for a loan modification that makes the terms of the loan more affordable have an option to escape foreclosure. "The bad news is that anecdotes and data suggest that these loan modifications are not really occurring."

Despite routine claims by lenders that they are open to modifications, often borrowers facing foreclosure receive help only from mortgage counseling agencies that act as intermediaries between borrowers and their lenders. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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