North Carolina just released a report which did a great job of narrowing in on the core issues that I hear from many people attempting to get their mortgage loans modified or who think a foreclosure prevention program is going to help save their house.
For a small minority of applicants these programs are effective, but for the vast majority of people that believe these bank implemented foreclosure avoidance programs are going to save their house, as of now, they are grossly mistaken.
Here is what the North Carolina report reveled:
The total number of struggling homeowners not on track for any foreclosure prevention assistance continues to grow. Only four out of ten seriously delinquent borrowers are involved in loss mitigation efforts.
While the HAMP program has increased the percentage of borrowers in the process of getting a loan work-out, the rising tide of delinquent loans has outpaced servicer outreach efforts. HAMP has helped to slow down the foreclosure crisis, but current efforts have been insufficient to get ahead of the foreclosure problem.
Both loss mitigation and foreclosure efforts appear backlogged.
While the number of homeowners in the work-out process is at an all time high, the number of loans resolved has dipped since the implementation of HAMP. The ratio of loans “in process” of loss mitigation to loans with loss mitigation resolutions has ballooned from nearly three-to-one in October 2008 to seven-to-one in October 2009. The average time to complete a loan modification for some servicers is over six months. Similarly, the number of loans in the foreclosure process dwarfs the number of foreclosures completed.
Most modifications result in payment reductions but principal reductions remain rare.
Despite the growing number of loans that are “underwater” (where the homeowner owes more than the property is worth), only 9 percent of loan modifications in October 2009 involved reducing the unpaid balance by more than 10 percent. More troubling, more than 70 percent of modifications result in an increase in the principal amount owed. Given the correlation between negative equity and likelihood of default, the failure to write down principal in connection with loan modifications is a glaring flaw in current efforts.
Prime loans are increasingly driving the rising delinquency rates.
While the State Working Group reporting has focused on subprime and Alt-A performance, we note the rate of seriously delinquent prime loans in our data is rising significantly. The foreclosure problem is broad-based and not isolated to poorly- underwritten or exotic loan products.
If you would like to read the entire report it can be found here.