Loan modifications surge as remedy to foreclosures
By Emmet Pierce
Copley News Service
As surging mortgage defaults create a drag on the economy, lenders say they are stepping up efforts to modify loans for homeowners who face foreclosure.
The mortgage industry modified an estimated 54,000 loans and established formal repayment plans with another 183,000 borrowers during the third quarter of 2007, according to a report by the Mortgage Bankers Association.
During that period, foreclosure actions began on approximately 384,000 loans, the association said. Of those foreclosures, 63 percent were cases where the borrower didn't live in the home, didn't respond to attempts by the lender to contact them, or failed to perform on a repayment or loan modification that was already in place.
"The mortgage industry took major steps during the third quarter to help those borrowers who could be helped," Jay Brinkmann, the association's vice president of research, said in a prepared statement.
Some consumer advocates say there has been too much focus on repayment plans and not enough on changing the terms of loans to make them more affordable.
"First and foremost, servicers should be much more aggressive than they have been in identifying borrowers who can benefit from long-term sustainable loan modification," said Paul Leonard, California director of the Center for Responsible Lending.
"I'm talking about making longer-term changes in the interest rates, which actually write off some of the full costs of the mortgage," he said.
In some cases it may benefit lenders to lower interest rates or reduce the amount due on loans "to avoid the even larger costs of foreclosures to borrowers, neighbors, investors and society as a whole," he added. David W. Berson, chief economist at PMI Mortgage Insurance, said modifications have to make sense for both the borrower and the lender. "It doesn't succeed if the borrower doesn't have any chance of being current anytime in the future."
Ed Smith Jr., vice president of governmental affairs and industry relations for the California Association of Mortgage Brokers, said progress has been made toward helping distressed borrowers.
"I think the industry is definitely moving forward, but it is not enough yet because of the enormity of the problem," he said.
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