Mortgage Daily

Published On: January 18, 2008
Foreclosure War Rages On

Recent foreclosure prevention activity

January 18, 2008

By COCO SALAZAR

photo of Coco Salazar
While the number of U.S. foreclosures has reached a startling level, so have the efforts by servicers to prevent them. And overwhelmed counseling agencies are seeing more resources headed their way.

ForeclosureHelpShop.com announced it recently launched its services to offer to delinquent borrowers a “reliable” online resource where they can obtain information and coaching to save their homes. Membership with FHS includes up-to-date legal information explained in simple terms.

Considering that community development corporations are experts in real estate development for low-income communities and that affordable housing shortage is at an all-time high, the corporations should play a lead role in foreclosed property disposition if economic stimulation legislation moves forward, the National Alliance of Community Economic Development Associations suggested in an announcement.

The corporations’ purchase of foreclosed properties would serve to protect existing area tenants, maintain the properties and ensure their long-term use as affordable housing in low-wealth communities as well as neighborhood stability. Thus, the alliance added that it hopes any future legislation is crafted so that nonprofits and community development corporations are able to participate.

To stem foreclosures in Maryland, Gov. Martin O’Malley recently announced a package of initiatives, including the Bridge to HOPE loan program that will provide small gap loans at zero percent interest to troubled borrowers and will be handled by the Maryland Department of Housing and Community Development.

O’Malley also announced an emergency regulation that will make Maryland the only other state besides California to require servicers to file detailed monthly disclosure reports about their loss mitigation and loan modification efforts.

Plus, among other legislation, the governor will propose to give delinquent homeowners more time to save their homes by requiring a lender to wait 90 days after default before filing a foreclosure action, send a uniform Notice of Intent to Foreclose to the borrower 45 days prior to filing an action, and personally notify a borrower of impending foreclosure and require that a sale may not occur for 45 days after service, according to the news release.

Notices of default issued to California borrowers numbered 32,948 in December, a 45 percent increase from November, ForeclosureRadar announced on Tuesday. And while auction sales increased by 4.1 percent from November to 12,783 properties with a loan value of $5.18 billion in December, a total 9,001 properties were sold at auction in just the first eight business days of January.

“Many analysts fail to understand the delays inherent in the foreclosure process, and I believe we have yet to see the real impact from the ARM resets that began in earnest last October,” said ForeclosureRadar founder Sean O’Toole in the announcement.

To help “hundreds of thousands” of borrowers who face rate resets and at risk of foreclosure, the California Home Ownership Preservation Initiative will contribute $4.6 million to mortgage counseling agencies, the California Reinvestment Coalition announced Monday. The funds could create 50 or more jobs at such agencies in the state.

The coalition said the initiative surged from its partnership with Merrill Lynch, HSBC-North America, Wachovia Bank, Comerica Bank, Wells Fargo Bank, Countrywide Financial, Citi, Bank of America, San Francisco Foundation and California Community Foundation.

“Counseling agencies report being overwhelmed by the 200 to 500 percent increase in homeowners walking through their doors in 2007,” the announcement stated.

Six servicers have joined the HOPE NOW Alliance since October, when it was formed, pushing to more than 20 the number of member servicers and to 90 percent the alliance’s representation of the subprime market. The new members consist of Carrington Mortgage Services, IndyMac Bank, Litton Loan Servicing, Merrill Lynch: Home Loan Services/Wilshire, Morgan Stanley/Saxon, and Ocwen Loan Servicing, the alliance said.

The Homeowner’s HOPE Hotline, which in December became the alliance’s primary contact for delinquent borrowers, fielded over 143,000 calls in the fourth quarter, according to the hotline’s operator, the Homeownership Preservation Foundation. The total is double the amount during the third quarter and nearly 10 times higher than the first quarter.

The calls to the 888.995.HOPE hotline also reportedly revealed that borrowers are addressing their issues earlier, as 31 percent who called were less than one month behind on their mortgage payments, up from 24 percent the previous quarter.

More than 37,000 homeowners received counseling in the fourth quarter alone — almost quadruple the 10,000 completed sessions in all of 2006. California continued to be the top counseled state, accounting for 18 percent of the calls, followed by Ohio’s 9 percent and Illinois’ 5 percent, the foundation reported.

Countrywide Financial Corp., a HOPE NOW member itself, announced it helped 81,266 borrowers retain their homes in 2007, with substantial growth occurring in the fourth quarter due to increased staffing, outreach and investor support. Of those borrowers, 62 percent had loans modified, over 13 percent received long-term repayment plans, and the remainder either had partial claims or other workout options.

Home retention efforts accounted for 90 percent of total workouts, which numbered 90,363 and included short sales and deeds-in-lieu, the Calabasas, Calif.-based lender reported.

“Home retention efforts in the second half of the year increased 148 percent compared to the first six months, and we anticipate helping even a greater number of borrowers in 2008,” Countrywide said in the announcement, adding that its own $16 billion home preservation initiative should help more than 82,000 borrowers with loans that will reset through the year’s end.

Overall, the mortgage industry modified an estimated 54,000 loans and established formal repayment plans on another 183,000 borrowers in the third quarter, of which subprime loans accounted for about 52 percent and 66 percent, respectively, according to a report announced Thursday by the Mortgage Bankers Association.

The report was based on the responses of servicers covering about 33 million mortgages, or approximately 62 percent of loans outstanding. The numbers were grossed up to reflect the partial coverage of the market.

Foreclosure actions were started on 384,000 loans, though in 63 percent of these cases the borrower did not live in the home, did not respond to repeated attempts by the lender to contact them, or failed to perform on a repayment plan or loan modification that was in place.

“The numbers of loan modifications, negotiated repayment plans established, and other actions to help borrowers are large and compare favorably with the number of foreclosure actions started, particularly when those foreclosures are adjusted to remove the borrowers who clearly could not be helped,” MBA said.

For subprime ARM loans, approximately 13,000 got modified and 90,000 had repayment plans established in the third quarter, and 40 percent eventually went into default anyway. Of 166,000 subprime ARM foreclosure actions, about 18 percent were on investor-owned properties and 21 percent involved borrowers who could not be located or did not respond to lenders’ contact attempts. In California, where foreclosures started grew most, investor properties accounted for 19 percent of subprime ARM foreclosures. In Florida, the other state seeing a rapid increase in foreclosures, investors represented 21 percent.

Within subprime fixed loans, 15,000 were modified and 30,000 received repayment plans. Investor properties represented 28 percent of subprime fixed-rate foreclosure starts on a national level, 20 percent within California and 27 percent in Florida. Cases where the borrower could not be located or would not respond to servicers represented 21 percent of the foreclosure starts in this group of loans.

Amongst prime loan foreclosure starts, second homes represented 18 percent of ARM starts and 14 percent for fixed-rate. Borrowers who could not be located or failed to respond made up 17 percent of the ARM filings and 33 percent of fixed-rate loan filings.

U.S. Treasury Secretary Henry M. Paulson called a report issued today by the HOPE NOW alliance “a promising development,” according to a Treasury statement today.

He said 370,000 borrowers were assisted by the mortgage industry during the second half of 2007, while over 16 percent of borrowers contacted their servicers in response to 233,000 outreach letters sent by the group in November.

“Entire industries do not adjust easily or quickly, even in times of market calm,” Paulson said in the statement. “But this alliance is demonstrating that an industry can improve its coordination and outreach to make a difference.”


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