Foreclosure Prevention Efforts Aren’t Keeping Up With Trends

FRANKFORT, Ky. – Industry measures to keep homeowners out of foreclosure are barely keeping pace with the rising rate of homeowners in trouble, according to the latest statistics collected by a group of state officials working to prevent home foreclosures.   

The State Foreclosure Prevention Working Group, a cooperative effort of state attorneys general and state financial regulators, this week released its second report. Data collected between October 2007 and January 2008 from subprime mortgage servicers – organizations that collect mortgage payments and manage escrow accounts – show no meaningful improvement in foreclosure prevention outcomes, despite widely-publicized campaigns to encourage homeowners in trouble to seek help and for servicers to fast-track loan modifications.

    The Kentucky Office of Financial Institutions (OFI) continues to encourage lenders to work with consumers and also urges consumers to contact their lenders as soon as a problem becomes apparent.

    “We were hoping that the most recent report findings would show progress in foreclosure prevention,” said OFI Executive Director Cordell Lawrence. “I am disappointed that the approach currently taken by servicers does not seem to be working as well as hoped.”

    In major respects, the subprime servicing data for January 2008 is unchanged from October 2007. Some of the key findings of the report are:

• Seven out of 10 seriously delinquent borrowers are not on track for any loss mitigation option. Loss mitigation is action taken on the part of the lender to change the terms of a seriously delinquent loan or otherwise lessen the risk of foreclosure. While the number of borrowers in loss mitigation has increased, it has been matched by an increasing level of delinquent loans.
• Data suggests that loss mitigation departments are severely strained in managing the current workload.
• For those homeowners receiving loss mitigation assistance, more are receiving loan modifications. There is a continued shift to longer-term solutions for homeowners who are receiving assistance.

    The State Foreclosure Prevention Working Group will continue to collect monthly data from servicers in order to provide public information on trends in the servicing industry during the foreclosure crisis. Currently, only national data is available, but the group hopes to make state-specific data available in the future. The group now collects data from 13 of the 20 largest subprime servicers. It plans to continue working with as many of the 20 as possible to remove barriers to increasing the number of loan modifications.

    “While it is my sense that many servicers are making positive efforts to avert foreclosures, we are still losing the larger battle to stop unnecessary foreclosures,” Lawrence said. “More must be done to assist those Americans who are fighting to save their homes. I support the State Working Group’s call for more systematic, long-term solutions to efficiently deal with subprime loans originated in recent years.”

    The State Foreclosure Prevention Working Group was formed in the summer of 2007 and consists of Attorneys General from 11 states (Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas), two state bank regulators (New York and North Carolina) and the Conference of State Bank Supervisors (CSBS). OFI is a member of CSBS. The most recent report of the State Working Group can be viewed at www.csbs.org.

    OFI is an agency of the Department of Public Protection in the Environmental and Public Protection Cabinet.  It supervises the financial services industry by examining, chartering, licensing and registering various financial institutions, securities firms and professionals operating in Kentucky. OFI’s mission is to serve the public through effective and efficient regulation that promotes consumer confidence and economic growth.