In its just released report, entitled Analysis of Mortgage Servicing Performance, Data Report No. 4, January 2010 (Report), the Conference of State Bank Supervisors (CSBS) called for stepped-up foreclosure prevention efforts to help homeowners. The Report -- the fourth public report, and the first in over a year -- contains data collected by the State Foreclosure Prevention Working Group (Working Group) from 13 servicers for over two years. Besides the CSBS, other members of the Working Group are representatives of Attorneys General of 12 states and three state bank regulators.
The Report concludes: the foreclosure crisis continues to worsen, with more foreclosures in 2010 than in 2009.
According to the Report's research, one in seven borrowers is behind on their mortgage and one in four owe more than their home is worth. The Report states that pay-option ARM mortgages are "ticking time bombs for payment shock, when these loans reset to much higher payments."
Important conclusion: foreclosure may be unavoidable in some instances, but "too many homeowners experience foreclosure when finding an alternative solution would be in the interest of both the homeowner and the mortgage holder."
Findings from State Working Group Data
- Only four out of ten seriously delinquent borrowers are involved in loss mitigation efforts.
- Both loss mitigation and foreclosure efforts appear backlogged.
- Most modifications result in payment reductions but principal reductions remain rare.
- Prime loans are increasingly driving the rising delinquency rates.
Recommendations to Prevent Unnecessary Foreclosures
- Servicers should suspend foreclosure proceedings on any loan currently involved in the loss mitigation process.
- Loss mitigation programs must be improved to prioritize principal reduction in areas of sigificant home price declines.
- Servicers need to pay particular attention to reforming payment-option ARM loans.
- The HAMP program must increase transparency and reduce paperwork in order to reach its potential.
- States should consider expanding counseling programs or implementing temporary foreclosure mediation or other such measures.
- Both servicers and Treasury should provide better options to keep unemployed homeowners in the homes.