Seven out of 10 borrowers who were seriously delinquent on their home loans in October were not receiving help to prevent the possibility of foreclosure, according to a report published Thursday by the State Foreclosure Prevention Working Group. The multistate group, made up of state attorneys general and banking regulators, is working to reduce the number of unnecessary foreclosures by encouraging loan modifications and other sustainable, long-term solutions.
The findings indicate that hybrid ARMs have not yet been a driving force in foreclosures. A significant percentage of homeowners are delinquent before they experience payment shock from their first adjustment, reflecting weak underwriting or fraud in the origination of the loan. "With so many homeowners struggling to stay afloat prior to rate resets, we need to act quickly to address these hybrid ARM loans before the payment shock due to the rate reset triggers further foreclosures," the report states.
Also interesting, the study found that actions by homeowners, not servicers, have prevented the most foreclosures. For those delinquent homeowners in contact with servicers, 45 percent were working toward modifying their home loan.
This points to the need for borrowers to contact their lender to explore alternatives to foreclosure, like those listed on the Washington Department of Financial Institutions Web site.
Refinancing may not be an option for every borrower, however. "Historically, serial refinancing was the primary way that the mortgage industry and homeowners managed delinquencies in subprime loans. Despite recent interest rate cuts, the mortgage industry will not be able to refinance its way out of this crisis absent dramatic changes in available loan products or a reversal in home price declines,” the report states.
Attorney General Rob McKenna has requested legislation to reduce foreclosure rescue scams like those we've mentioned on our All Consuming blog. Our office convened a think tank last summer with the Washington Bar Association and Northwest Justice Project to look at issues around mortgage problems and fraud.