6 Digits of Loan Modifications and Repayment Plans

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RISMEDIA, Jan. 22, 2008-The mortgage industry modified an estimated 54,000 loans and established formal repayment plans with another 183,000 borrowers during the third quarter of 2007, according to a report issued by the Mortgage Bankers Association. By comparison, foreclosure actions were started on approximately 384,000 loans, but of those foreclosures, 63% were cases where the borrower did not live in the home, the borrower did not respond to repeated attempts by the lender to contact them, or where the borrower failed to perform on a repayment plan or loan modification that was already in place.

“The mortgage industry took major steps during the third quarter to help those borrowers who could be helped,” said Jay Brinkmann, MBA’s vice president of Research. The numbers of loan modifications, negotiated repayment plans established, and other actions to help borrowers are large and compare favorably with the number of foreclosure actions started, particularly when those foreclosures are adjusted to remove the borrowers who clearly could not be helped.”

“It is likely that the number of loan modifications for subprime ARMs will continue to grow through the outreach efforts of the industry,” Brinkmann continued “Particularly through the HopeNOW Alliance that includes counselors, mortgage market participants and mortgage servicers working together to try and help avoid foreclosures whenever possible. The U.S. Treasury Department has played a crucial role in bringing the lending community together to develop approaches to deal with the current problems.”

For subprime ARM loans there were approximately 13,000 loan modifications and 90,000 repayment plans established in the third quarter. For borrowers with subprime fixed-rated loans, loan servicers instituted 15,000 loan modifications and 30,000 repayment plans.

The report found that while approximately 166,000 foreclosure actions were started on subprime ARM loans during the third quarter, approximately 18% of those were on investor-owned properties, and in 21% of the cases the borrower either could not be located or would not respond to repeated attempts by the lenders to contact them.

Subprime ARM borrowers who already had a repayment plan or loan modification in place but were unable to avoid default anyway accounted for 40% of the subprime ARM foreclosures.

The MBA report is based on responses from mortgage servicers covering about 33 million mortgage loans, or approximately 62% of the loans outstanding. The numbers are grossed up to reflect the partial coverage of the market.

While investor-owned properties accounted for 18% of foreclosure starts for subprime ARM loans in the third quarter, they accounted for 28% of subprime fixed-rate foreclosure starts, 18% of prime ARM foreclosure starts and 14% of prime fixed-rate foreclosure starts. In California, the state showing the fastest increase in foreclosures started, investor-owned properties accounted for 19% of subprime ARM foreclosure starts and 20% of subprime fixed-rate foreclosure starts. In Florida, the other state seeing a rapid increase in foreclosures, investors accounted for 21% of subprime ARM foreclosures and 27% of subprime fixed-rate foreclosures.

Cases where the borrower could not be located or would not respond to attempts by the mortgage servicer to contact them accounted for 21% of subprime ARM foreclosure starts, 21% of subprime fixed-rate foreclosure starts, 17% of prime ARM foreclosure starts and 33% of prime fixed-rate foreclosures started.

For more information, visit www.mortgagebankers.org

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