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Foreclosure Prevention Efforts Slow

by Peter G. Miller
March 23rd, 2008

According to a new study lender efforts to limit foreclosures have actually declined.

Published by the California Reinvestment Coalition, an alliance of 250 nonprofit organizations and public agencies across the state, the study looked at the issue of whether aid for distressed homeowners was increasing or not. Comparing results with a similar report done law August, the Coalition found that assistance was substantially less-forthcoming according to a survey of 38 mortgage counseling agencies.

Here are some of the results reported in the study:

Lenders not responsive. Agencies were asked if both particular servicers, and the industry as a whole, have been consistently modifying loans by fixing interest rates for the life of the loan. 17 groups responded that the industry as a whole is not consistently modifying loans for long-term affordability. No groups reported that the industry as a whole was modifying loans for the long term.

Postponing the day of reckoning. In general, for borrowers in early delinquency or facing unaffordable interest rate resets, servicers are not fixing rates for the long term. Counseling groups were most likely to respond that when servicers were willing to modify loans, they were only willing to fix interest rates for one year at a time. These short-term modifications only delay the problem for another year, and are akin to giving the borrower another bad loan with a short period of affordability.

Devastating borrower outcomes. Counseling agencies were asked how common different outcomes were for their clients. The responses to this critical question were as bleak as they were a few months ago.

___Foreclosures still lead. Groups were most likely to report foreclosure a “very common” outcome for borrowers. A shocking 26 groups, or 72% of those reporting, said that foreclosures are a very common outcome for their clients. This was an increase from the 19 groups reporting so four months ago. In December, a total of 34 groups, or 94% of those reporting, said that foreclosures were a “very common” or “somewhat common” outcome for borrowers.

___Short sales still next. 17 groups, or 50% of those reporting, cited “short sales”—where servicers minimize their losses by allowing homeowners to sell their property for less than the amount of money owed—as a “very common” outcome for borrowers. An additional 13 agencies reported short sales as “somewhat common,” meaning that for the month of December, 88% of groups responding reported that short sales were “very common” or “somewhat common. ” While preferable to foreclosure, short sales still leave the borrower without a home or equity, and may result in a higher tax bill.

___Loan modifications not happening. In contrast, only 6 counseling agencies, or 17% of groups reporting, said that loan modifications are a “very common” outcome for borrowers. At the same time, 14 groups, or 44% of those reporting, said that loan modifications are “not common.”

The entire report can be found at: The Growing Chasm Between Words and Deeds.

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