Group Urges More Principal Reductions as Foreclosures Outpace Fixes

ForeclosuresThe increased use of loan modifications resulting in lower payments has created more “sustainable” mortgages, but foreclosures continue to outpace the number of reconfigured loans, according to a report this week by the State Foreclosure Prevention Working Group.
The report echoed the conclusion of a watchdog over the government’s Home Affordable Mortgage Program, HAMP, which recommended that lenders be required to reduce mortgage principals to effectively combat foreclosures and rising negative equity, or the epidemic of “underwater mortgages.” Such reductions are now voluntary.
“Currently…only one in five loan modifications reduce the loan amount, and the vast majority of loan modifications actually increase the loan amount by adding servicing charges and late payments to the loan balance,” said the group’s report.
The SFPW group, made up of 12 state attorneys general and three banking regulators, has collected data from 13 mortgage servicers for two years. This is its fifth public report, and the second one this year following its January report.
The group finds that more than 60 percent of homeowners with serious delinquent loans are still not involved in any loss-mitigation activity. Without improvements in foreclosure prevention efforts, the group “anticipates hundreds of thousands of foreclosures will occur later this year.”
“The report certainly indicates there are positive developments with regard to loan modifications,” said Neil Milner, President and CEO of the Conference of State Bank Supervisors. “However, there is still a tremendous amount of work to be done to prevent unnecessary foreclosures. Servicers must continue to perform meaningful outreach to those homeowners who are seriously delinquent and to perform modifications with significant principal reduction.”
View all the reports by the State Foreclosure Prevention Working Group.
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