New effort to modify at-risk home loans
A housing alliance, including some of the nation's biggest lenders, is working with mortgage-service companies to modify loans rather than let them fall into foreclosure.
Industry efforts to reduce foreclosures are expanding and improving – a welcome sign of progress in what remains a race to keep up with rising mortgage delinquencies.Skip to next paragraph
Subscribe Today to the Monitor
The Hope Now Alliance, a group including some of the nation's biggest lenders, announced Tuesday an agreement with mortgage-service companies to modify a greater share of at-risk loans, rather than let them fall into foreclosure.
Among other things, the new guidelines are designed to ensure that participating companies move quickly – deciding within 45 days whether they can modify a loan.
Also, Hope Now said it was launching the mortgage lending industry's first-ever guidelines for dealing with second mortgages. Often, it's been hard to offer relief on the terms of mortgages because many borrowers owe money to two mortgage holders with different interests in "workout" negotiations.
Housing analysts say that, although a full recovery in the housing market won't come with any overnight agreement, the moves by lenders represent a significant step forward.
"Any kind of improvements they can make are ... important," says Ren Essene, a housing market expert at the Joint Center for Housing Studies in Cambridge, Mass. "Clearly they're trying to respond just in time ... as they're learning on the ground what kinds of barriers the borrowers are meeting."
By cutting the number of foreclosures, the new steps could reduce the blight of hard-hit neighborhoods, especially in states such as Florida and California where the problems are most concentrated. And, by reducing the number of fire-sale home auctions, downward pressure on home prices could ease.
This new relief effort comes none too soon. The national foreclosure rate has been rising to record levels, and the upward trend has not abated.
The problems have been concentrated in the so-called subprime loans, but defaults have been rising in prime loans as well. And for one risky class of loans – adjustable-rate mortgages (ARMs) in which the borrower has the option to pay none of the principal balance at the start of the loan – a wave of loan adjustments or "resets" looms in the coming year and beyond.
"These new guidelines will greatly expedite the process of preventing foreclosures," Faith Schwartz, executive director of Hope Now, said in a statement Tuesday.
Hope Now members account for roughly two-thirds of US mortgages.