Bank Regulator Highlights Foreclosure Prevention Practices

If you want to help troubled borrowers avoid foreclosure, contact them early and be their friend, a bank regulatory agency is advising.

Noting that nearly $500 billion to $800 billion of adjustable-rate mortgages will reset this year at higher interest rates, the OCC, using MBA figures, estimates that as many as 1.1 million foreclosures could result over the next six years from rate resets, teaser rates expiring and payment-option problems.

The Office of the Comptroller of the Currency recently published a report, "Foreclosure Prevention: Improving Contact with Borrowers," that advises servicers to improve contact with delinquent mortgage borrowers. The OCC says that early contact and communication with lenders and "trusted advisors" is needed to develop alternatives to foreclosure that allow borrowers to stay in their homes.

"Effective foreclosure prevention strategies rely on increasing the amount of contact between loan servicers and delinquent borrowers," said Barry Wides, OCC's deputy comptroller for community affairs, in a news release. "And the sooner this contact begins, the more likely it will be successful."

He added that a growing number of lenders are partnering with nonprofit agencies to provide foreclosure counseling. As a result, he said a growing number of nonprofit agencies are available to assist servicers in this regard.

The OCC said that lenders are using three main strategies to contact delinquent borrowers - direct phone calls from the servicer, phone calls from a nonprofit agency partner, and offering toll-free numbers so borrowers can call the servicer or a nonprofit partner. An increasing number of servicers are also using "door knockers" to reach delinquent borrowers who are unresponsive to phone calls, the agency noted.

The OCC noted that the nation's homeownership rate has increased from 65% in 1995 to 69% in 2006, reflecting efforts to extend the market's reach with more aggressive financing and loosened underwriting requirements for home loans.

Higher foreclosure rates are an unintended consequence of extending financing to less creditworthy borrowers, the OCC said.

The OCC also noted that banks often face unwelcome, negative publicity over foreclosure activity. That gives the industry an added incentive to embrace foreclosure prevention efforts. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

Next in News ►