Loan-rescue group says aid is increasing
WASHINGTON --A Bush administration-led effort to rescue troubled homeowners said it helped 5 percent of borrowers with subprime loans in the second half of 2007.
A coalition of lenders, investors and nonprofit groups -- dubbed Hope Now --was created in October to address soaring mortgage defaults and home foreclosures that have hobbled Wall Street banks and sent stock indexes plummeting.
Final results for December aren't in yet although the Hope Now group Friday said it was on track to have helped 370,000 borrowers with shaky credit in the second half of last year. That works out to 5.2 percent of the 7.1 million outstanding subprime loans.
"It's going probably as fast as one could reasonably expect given that this crisis has mushroomed so rapidly," said Bill Longbrake, senior policy adviser to the Financial Services Roundtable, a banking industry group helping coordinate the response. "These things take a little bit of time to build up."
Foreclosure prevention is a top policy priority in Washington. More than 1.8 million mortgages made to borrowers with poor credit are scheduled to reset to higher rates this year and next.
Last month, the Bush administration brokered a deal with the mortgage industry to freeze rates on some subprime mortgages for five years to help at-risk homeowners when introductory rates reset to sharply higher levels. Treasury Secretary Henry Paulson said last week the administration is exploring a significant expansion of the program.
Members of Hope Now include
The group said Friday that industry efforts ramped up in the fourth quarter. It projected 84,000 subprime loans were modified in the fourth quarter, up from 28,000 in the third quarter. Of the 950,000 borrowers estimated to be delinquent in the second half of 2007, the group estimated it helped nearly 40 percent.
Of that group, 120,000 were helped through permanent loan modifications, such as lower interest rates -- while 250,000 negotiated repayment plans, which often involve a borrower getting back on track even though a few payments were missed, according to the alliance.
The data were collected from nine loan-servicing companies, handling nearly 60 percent of subprime loans.
Consumer groups, however, still criticize the effort as too limited, and point out that many borrowers can't keep up, even after loan workouts.
Yet many in Washington seem encouraged by the progress.
Sheila Bair, chairman of the Federal Deposit Insurance Corp. and an outspoken proponent of loan modifications, said in a statement that Friday's report "demonstrates that there is a greater recognition by industry that the pace of loan modifications needs to accelerate."
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said: "Obviously, much more is needed, but I welcome the progress that has been made." On Thursday, the Mortgage Bankers Association said loan servicers made modifications or set up repayment plans for 148,000 subprime loans in the third quarter, adding that the industry is making progress toward helping borrowers.
Consumer groups reacted skeptically, noting that loan modification numbers remained low -- at 13,000 -- for subprime loans with adjustable rates. They also highlighted the report's finding that a high number of borrowers -- 40 percent of the subprime adjustable loans that foreclosed in the third quarter -- didn't keep up with modified loans or repayment plans.
A report by Moody's Investors Service in September found that 3.5 percent of subprime loans that reset to higher levels in the first eight months of 2007 had been modified. On Wednesday, Countrywide Financial Corp. -- the nation's largest mortgage lender -- said it helped more than 81,000 borrowers keep mortgage payments manageable last year, part of a stepped-up campaign to stem growing defaults and foreclosures.
The Calabasas, Calif.-based company, which was servicing more than 9 million loans as of Dec. 31, said it helped those borrowers to modify loan terms, work out long-term repayment plans or take other actions. --On the Net: Hope Now initiative: http://www.hopenow.com 