Foreclosure Efforts Not Strong Enough To Be Effective

April 29th, 2008

With foreclosure efforts not being strong enough to be effective there is a growing pressure for more assistance to help beleaguered house owners. The blame is being put on the mortgage industry for not doing sufficient towards mitigation of this crisis. This is according to a new report being compiled by a some state attorneys general and bank supervisors who have come together for this purpose. The actions are far short of the much publicized aims to help house owners and encourage servicers to do their bit as regards modification of home loans so as to stop foreclosures and repo homes. Although the number of those who have sought and got help have increased the figures are offset by the increasing number of delinquent loans piling up.

According to a summary of the report coming in from all quarters for the period October 2007 to January 2008, seven out of ten serious delinquent cases are still not on the loan mitigation schedule, the numbers of loss mitigation has gone up but with more delinquent loans coming in, the balance tilts heavily in favour of the latter. Thus a large gap exists despite the public awareness and help programmes launched by HOPE.

The report also shows that the loss-mitigation departments of the servicers are weighed down by heavy pressure of work. About two thirds of the work are not completed within a month.

Those who are not in the loss-mitigation category get some sort of loan modification. The suggestion by the group is that this loan modification is the answer for long term solutions. Many servicers are opting for this.

The general conclusion of the report is the picture of sub-prime servicing remains the same during the above mentioned period.

At the same time US House of Representatives have initiated a law that would sanction $300 billion in fresh guarantees from FHA to allow for refinancing by borrowers who are at risk from foreclosures. There are however some conditions. The loan has to originate prior to 31^st December 2007 and the mortgage debt-to-income ration must not be less than 35% as on 1^st March 2008. The lender must also agree to write down a substantial part of the principal.

Generally the legislation has been welcomed with the hope that it will stabilize the sinking real estate market. The lenders are not being given a bail-out but their losses will be less than what it would have been if the property had been allowed to go into foreclosure.