Homeowners Favor Repayment Plans to Mods

Hope Now servicers are starting to provide data on their loan workout efforts and the first report shows that troubled subprime ARM borrowers in the third quarter were seven times more likely to end up in a repayment plan than getting relief through a loan modification.

The report compiled by the Mortgage Bankers Association shows that 90,520 borrowers with adjustable-rate subprime mortgages agreed to repayment plans while servicers reduced the interest rate or principal amount for only 12,740 borrowers.

The MBA report highlights that loan modifications are the exception not the rule.

But Bush administration officials and banking regulators are desperately trying to get servicers to adopt aggressive loan modification strategies to deal with an increasing volume of resets on subprime ARMs. Two million subprime ARMs are slated to reset in 2008 and 2009.

In December, the Hope Now servicers agreed to fast-track certain subprime borrowers into loan modifications or refinancings.

Treasury secretary Henry Paulson said the first report shows that the servicers have the potential to help more homeowners stay in their homes and prevent a market failure.

"I look forward to seeing regular progress reports from the organization in the coming months, as servicers implement the streamlined modification and refinancing plan announced in December," he said.

Treasury officials encouraged the formation of the Hope Now alliance, which includes all the major subprime servicers. Secretary Paulson also has emphasized the importance of reporting the workout data to measure the effectiveness of the servicers' foreclosure prevention efforts.

The subprime servicers also are providing workout data to a group of state attorneys general and banking regulators. "We are now in the process of analyzing that data as it comes in from the servicers," New York banking superintendent Richard Neiman said.

The multistate working group, headed by Iowa attorney general Tom Miller, began working with subprime servicers last summer to make sure distressed homeowners are getting the assistance they need to avoid foreclosure.

FDIC chairman Sheila Bair encouraged the servicers to continue to report their results to the states and the Hope Now alliance. "While no one likes reporting, given the current situation, it's critical that the industry show effective action to avoid unnecessary foreclosures."

The Federal Deposit Insurance Corp. chairman forcefully pushed for loan modifications where servicers freeze the interest rate on subprime ARMs before the reset. Treasury and the Hope Now alliance adopted this "teaser freezer" approach. "We look forward to the reporting of information that will provide results of the fast-track loan modification announced by Secretary Paulson in December," Ms. Bair said.

Overall, servicers reported 54,000 loan modifications and 183,000 repayment plans on prime and subprime loans. They also started 384,000 foreclosures in the third quarter. Investor-owned properties account for 18% of foreclosure starts on subprime ARMs and prime ARMs. The MBA report also shows that servicers started foreclosure actions on 166,000 subprime ARMs in the third quarter and 66,000 of those borrowers already had a repayment plan or loan modification plan in place.

Consumer activists consider repayment plans out-of-date and ineffective when it comes to subprime ARMs saying it only postpones foreclosures. "Such short-term fixes only cover up the pending damage to the economy," according to the National Community Reinvestment Coalition. One million securitized subprime mortgages were in default as of Oct. 31, which means they were 90 days or more past due, in foreclosure or real estate-owned. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/