The State Foreclosure Prevention Working Group consists of 12 state attorneys general (Arizona, California, Colorado, Florida, Illinois, Iowa, Massachusetts, Nevada, North Carolina, Ohio, Texas and Washington), bank regulators for New York, North Carolina, and Maryland, and the Conference of State Bank Supervisors. They are a relatively objective group that offers solid data on the foreclosure crisis that bears careful consideration. A copy of the group’s January report can be found here.
A summary of the findings is as follows:
- One in four homeowners with a mortgage owes more than their home is worth.
- The unemployment rate is 10% nationally, with millions of additional Americans either out of the workforce or underemployed. Hundreds of thousands of homeowners have ” pay option” ARM mortgages that are ticking time bombs for payment shock, when these loans reset to much higher payments. Despite efforts of servicers, homeowners, and the government, the foreclosure crisis continues to worsen.
- The federal Home Affordable Modification Program (HAMP) has led to offers of loan modification assistance to over 1.1 million homeowners; however, early indications are that servicers have been unable to implement the program effectively and many homeowners with trial modifications are not yet qualified to transition to a permanent loan modification.
- The total number of struggling homeowners not on track for any foreclosure prevention assistance continues to grow. Only four out of ten seriously delinquent borrowers are involved in loss mitigation efforts.
- While the HAMP program has increased the percentage of borrowers in the process of getting a loan work-out, the rising tide of delinquent loans has outpaced servicer outreach efforts. HAMP has helped to slow down the foreclosure crisis, but current efforts have been insufficient to get ahead of the foreclosure problem.
- Both loss mitigation and foreclosure efforts appear backlogged. While the number of homeowners in the work-out process is at an all time high, the number of loans resolved has dipped since the implementation of HAMP.
- The ratio of loans ” in process” of loss mitigation to loans with loss mitigation resolutions has ballooned from nearly three-to-one in October 2008 to seven-to-one in October 2009.
- The average time to complete a loan modification for some servicers is over six months.
- The number of loans in the foreclosure process dwarfs the number of foreclosures completed.
- Most modifications result in payment reductions but principal reductions remain rare. Despite the growing number of loans that are ” underwater” (where the homeowner owes more than the property is worth), only 9 percent of loan modifications in October 2009 involved reducing the unpaid balance by more than 10 percent.
- More troubling, more than 70 percent of modifications result in an increase in the principal amount owed.
- Prime loans are increasingly driving the rising delinquency rates. While the State Working Group reporting has focused on subprime and Alt-A performance, we note the rate of seriously delinquent prime loans in our data is rising significantly. The foreclosure problem is broad-based and not isolated to poorly-