Servicers Increase Focus on Modifications; Foreclosures Jump 35 Percent in First Quarter
Almost 503,000 prime and subprime homeowners were able to stay in their homes during the first quarter of 2008 because of loan workouts provided by mortgage servicers, according to a report released Monday morning by the HOPE NOW coalition. Of 502,500 total loan workouts booked in the first quarter of 2008, the group said that approximately 323,000 were repayment plans and 179,500 were loan modifications; loan modifications represented roughly 44 percent of all subprime workouts, double the rate recorded in 2007, but were just 23 percent of prime workouts. "I guess it's almost better to be a troubled subprime borrower these days," said one source, who suggested that political pressure to help subprime borrowers has not extended to prime borrowers. "There's an easy reference point for someone categorized as subprime, whether right or wrong, which means that more effort and focus has gone into programs to help this group of borrowers," she said. The difference in workouts offered to prime and subprime borrowers is likely not due to a plan announced in December by the American Securitization Forum that would fast-track solutions for subprime ARM borrowers who could afford their starter rate, but could not afford the reset rate -- resets have since become a minimal problem for borrowers, as rates have dipped significantly, essentially eliminating payment shock as a key problem for every class of borrower. That sentiment is borne out in the data, as well. There were 431,171 subprime 2/28 and 3/27 loans scheduled to reset during the first quarter of 2008, according to HOPE NOW's data; 14,418 were modified, while 203,000 of these loans -- that's 47 percent of scheduled resets -- were paid in full via refinancing or a sale. Many of those prepayments might have been defaults in a different rate environment, industry experts that spoke with HW suggested. A self-inflicted foreclosure surge? While total workouts increased roughly 6 percent quarter over quarter -- and servicers clearly have focused on more permanent loan modification activity -- the increase was not nearly enough to keep pace with a 35 percent quarterly jump in foreclosure activity. The industry recorded a ratio of 2.4 workouts per foreclosure during the first quarter, below the 3.1:1 ratio recorded in Q4 and the 2.9:1 ratio recorded in Q3. Some sources have suggested that an over-reliance on repayment plans earlier in the current cycle is now coming back to bite servicers and, potentially, investors. Borrowers that might have defaulted in Q3 or Q4 are finally seeing what was essentially an inevitable foreclosure take place in early 2008 instead. "The pressure on many servicers is just enormous," said one source, an MBS analyst who asked not to be named. "I'm sure the consumer side will latch onto these numbers as proof that servicers aren't doing enough, when the real question ought to be: what percentage of these foreclosures were actually preventable, and were they prevented?" "Mortgage servicers continue to focus on doing everything possible to help troubled homeowners avoid foreclosure," said Faith Schwartz, executive director of HOPE NOW. "While there is still more work to be done, concrete progress is being made, and HOPE NOW members will continue their efforts and work to help as many borrowers as possible." For more information, visit http://www.hopenow.com.