Office of Financial Institutions
Report Indicates Mortgage Servicers Should Reach Out More
FRANKFORT, Ky. (Feb. 8, 2008) – A national report released Thursday by a group of state attorneys general and banking regulators indicates companies that service mortgage loans need to continue to reach out to consumers to avoid foreclosure.
The report, “Analysis of Subprime Mortgage Servicing Performance,” provides public data collected on the efforts of mortgage servicers – organizations that collect mortgage payments and manage escrow accounts – to keep losses to a minimum.
The report found that the mortgage servicer has failed to take steps to lessen the risk of foreclosure for seven out of 10 seriously delinquent borrowers. Many lenders want to avoid foreclosure because often the lender loses money as well as the homeowner. The Kentucky Office of Financial Institutions (OFI) continues to encourage lenders to work with consumers and also encourages consumers to contact their lender as soon as a problem becomes apparent.
“Many servicers are making positive efforts to avert foreclosures, but we are still losing the larger battle to stop unnecessary foreclosures,” said OFI Executive Director Cordell Lawrence. “More must be done to assist those who are fighting to save their homes.”
The report’s October 2007 data also revealed the following findings:
- Servicers have increased their use of loan modifications and other home retention options. For those delinquent homeowners in contact with servicers, almost half (45 percent) are working toward a loan modification.
- Payment resets on hybrid adjustable-rate mortgages (ARMs) have not yet been a driving force in foreclosures. A significant percentage of subprime adjustable rate loans are delinquent before they experience payment shock from their first adjustment.
- Actions by homeowners, not servicers, have prevented the most foreclosures. Most delinquent loans resolved in October 2007 occurred because the homeowner caught up on back payments.
- The refinance option has nearly evaporated. Despite recent interest rate cuts, the mortgage industry will not be able to refinance its way out of this crisis without dramatic changes in available loan products or a reversal in home price declines.
The report’s author, the State Foreclosure Prevention Working Group, seeks to reduce the number of residential mortgage foreclosures by encouraging loan modifications and other sustainable, long-term solutions for homeowners facing foreclosure. To view the report, visit www.csbs.org/Content/NavigationMenu/Home/StateForeclosurePreventionWorkGroupDataReport.pdf.
“This report offers our first glimpse of reliable data on what is actually being done by servicers to provide relief to homeowners facing foreclosure,” Lawrence said. “A uniform and objective data collection mechanism is a tremendous step in the right direction toward implementing techniques that can keep people in their homes.”
The Working Group anticipates future reporting on the data collected monthly from servicers, which will provide public information on trends in the industry during the foreclosure crisis. Currently, only national data is available, but the group hopes to make state-specific data available in the future. Also, the group will continue to work directly with the top 20 subprime servicers to remove barriers to increasing the number of loan modifications.
OFI is an agency of the Department of Public Protection in the Environmental and Public Protection Cabinet. It supervises the financial services industry by examining, chartering, licensing and registering various financial institutions, securities firms and professionals operating in Kentucky. OFI’s mission is to serve the public through effective and efficient regulation that promotes consumer confidence and economic growth.