On April 23, Washington Post staff writer Dina ElBoghdady reported that “seven out of 10 troubled mortgage borrowers remain without a plan to work out their loans despite increased industry efforts to help them” according to a report released by a coalition of state attorneys general and banking regulators. The coalition represents 11 attorneys general, two state banking departments and the Conference of State Bank Supervisors.
The group collected data from 13 of the largest subprime lenders from October 2007 through January 2008 and found that lenders are being overwhelmed by their workload and are unable to keep pace with borrowers who fall behind on their payments. Even though 50,000 more loans were modified in January 2008 than in October 2007, 90,000 additional loans have since became delinquent.
“There still seems to be a disconnect between homeowners and their mortgage servicers,” says North Carolina’s deputy commissioner of banks Mark E. Pearce.
Despite the grim outlook, the coalition’s report reflects that the number of late borrowers working with lenders to prevent foreclosure has increased and lenders have taken more aggressive measures to help borrowers.
Instead of simply rescheduling missed payments, lenders are modifying loan terms to reduce the overall burden. Interest rates have been lowered or loan terms were extended to decrease monthly payments. In some admittedly rare cases, lenders have even forgiven a part of the principal.
Lenders, however, still cannot make a dent in the problem because they simply cannot keep up with the number of delinquent loans. The coalition has argued that lenders need to change the systems so that borrowers with similar problems are automatically handled the same way. The current system addresses the problems on a case-by-case basis.
Iowa’s attorney general, Tom Miller noted that the focus of lenders “has always been to collect money–not to give a better deal to borrowers.” Miller encourages a shift in psychology going forward. Lenders say they made the shift because it is “in their financial interest to avoid costly foreclosures.”
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