New Research: Homeowner Bill of Rights Could Speed Economic Recovery

Loan modifications work, critical to stabilizing housing market


Center for Responsible Lending
June 25, 2012

More than 80 percent of California homeowners who received modifications in 2010 stayed current and avoided re-default despite the continued recession, according to a new Center for Responsible Lending analysis.

These new data indicate that the Homeowner Bill of Rights is critical for large numbers of borrowers, their communities and the overall California housing market. The legislation, which has undergone six weeks of intense negotiation with banks, legislators, the Attorney General and consumer groups, would ensure that borrowers in owner-occupied homes applying for loan modifications get full and fair consideration for those modifications before the foreclosure process begins, among other provisions.

Servicers making up-front decisions about loan modifications will allow the foreclosure process to move more quickly for those who don’t qualify for alternatives to foreclosure and will help stabilize housing prices by preventing unnecessary foreclosures on borrowers who do.  

CRL's latest analysis presents three new findings:

  • Loan Modifications Work:  Loan modifications work exceptionally well to keep borrowers in their homes.  An analysis of California loans modified in 2010 demonstrates that more than 80 percent of those homeowners have stayed current and avoided re-default. Only two (2) percent of modified loans ended in foreclosure. The sustainability of modifications will likely improve with the growing adoption of principal reduction as a component of loan modifications. 

  • Large Numbers of Borrowers Remain at RiskNearly 700,000 California homeowners are in some stage of delinquency or foreclosure, with a state delinquency rate of more than 11 percent, or 1 out of 9 borrowers. Foreclosures affect neighbors and communities, reducing property values and destabilizing neighborhoods. Two-thirds of all California borrowers live in counties with delinquency rates of at least 10 percent, with the highest rates in the Central Valley and Inland Empire.

  • Middle Class, African Americans and Latinos Hardest Hit:  While high delinquency rates persist among African Americans and Latinos, Asians and non-Hispanic whites have not avoided the effects of the economic recession. African Americans and Latinos have delinquency rates of 11.1 and 10.7 percent, respectively, while the delinquency rates for Asians and whites are 7 and 7.3 percent respectively. Further, delinquencies are concentrated among California's middle-class borrowers, those making between $42,000 and $120,000 annually.

“California policymakers will soon have the chance to extend key servicing reforms from the National Mortgage Settlement to all California borrowers, said Paul Leonard, CRL’s California Director.  “Our legislators have an historic opportunity to overcome intense opposition from the big banks and ensure that all Californians get a fair shot at loan modifications.”

See the full policy brief, including tables on delinquency by county, income, and race/ethnicity.

For more information: Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.