Good-Credit Borrowers A Growing Problem for Servicers
First, the good news: the number of recorded foreclosure sales during August actually fell, according to data released Thursday by the coalition of mortgage servicers, counselors and investors known as HOPE NOW. The drop -- from 91,902 foreclosure sales in July to 86,594 in August -- was the first in the 14 months that group has been aggregating data from key servicers. The not-so-good news, however, is that the drop may say more about servicing capacity and decisions than it does about a potential shift in the nation's housing and economic woes, according to various sources. Equally troubling is data the continues to show a growing number of prime borrowers in distress. Some sources suggest properties in foreclosure are simply stalled -- voluntarily or involuntarily on the servicer's part -- and not showing up as completed foreclosures. “It is becoming increasingly apparent that lenders and trustees can either no longer process all of their foreclosures, or are purposefully delaying the foreclosure process,” said ForeclosureRadar founder Sean O’Toole in September. The company maintains a database of foreclosure actions within California, which saw a plateau in foreclosure activity during August. Prime distress? HOPE NOW said that while the volume of foreclosure sales fell, so too did the number of workouts, from 192,220 in July to 188,931 in August. The result was only a slight increase in the number of workouts completed per foreclosure sale, as a result, to a ratio of 2.18 in August compared to 2.09 in July; but any increase should be welcomed by consumer advocates as evidence of progress by lenders and servicers. A closer look at the numbers, however, suggests that prime borrowers are proving particularly problematic for servicers. For one thing, of all the categories tracked by HOPE NOW, only one showed a monthly increase during August -- and that was the number of repayment plans utilized among prime borrowers. Loan modifications for prime borrowers represented just 26.9 percent of all prime workouts completed in August, while subprime borrowers saw nearly 57 percent of their workouts come in the form of a loan modification during the same period. Which means that if you're facing trouble with your mortgage, it may actually pay to be a subprime credit risk, as counter intuitive as that may seem. The reason why lies in understanding the fact that repayment plans tend only to stave off a foreclosure rather than acting to prevent it; see an earlier HW story on this issue. "Many repayment plans simply put past payments onto the back end of the loans, putting off the agony," CNBC's Diana Olick reported in May, as well, echoing the same sentiment we've suggested for roughly ten months now. HOPE NOW has also faced plenty of criticism for its reporting by consumer advocates who say the group discloses little of the type of modification or form of repayment plan used. While HOPE NOW officials have not commented publicly on the matter, servicing industry sources that have spoken with HW suggest the reason has less to do with HOPE NOW than consumer groups might like to believe; instead, the lack of detail reflects a wide variety of options that can be considered either a repayment plan or loan modification. For more information, visit http://www.hopenow.com.