HOPE NOW claims in a press release today that the mortgage lending industry's program of facilitating voluntary workouts for distressed mortgage holders has helped 1.7 million borrowers stay in their homes. Once again, a closer look at HOPE NOW's data shows these numbers greatly overstate the help being provided and that the foreclosure crisis continues to accelerate and overwhelm industry's voluntary attempts to renegotiate unaffordable home loans.

HOPE NOW servicers have been at this for a year now. Clearly they have failed. Delinquencies and foreclosures keep going up, and tens of thousands of loans "fixed" voluntarily by industry have already gone bad again. A survey of mortgage servicers by the California Department of Corporations, also released today, shows foreclosures continue to outpace modifications in that state. And a report released last month by a major federal banking regulator, the Comptroller of the Currency, provides more evidence that the nation's lenders are unable to keep up with, let alone get ahead of, mortgages delinquencies.

As our economy continues to suffer from the home-lending debacle, what began as a torrential subprime mortgage problem is now seeping into the prime market as well. We are out of time. As foreclosures keep piling on, it makes no sense to keep relying on ineffective voluntary efforts when better solutions are at our fingertips. The market has shown that it cannot fix itself.

Here's an updated snapshot of the housing market's distressing trends, based on HOPE NOW numbers released today and the most recent Mortgage Bankers Association's National Delinquency Survey, released last month:

  • Seriously delinquent loans are at a record high for both prime and subprime loans. The MBA survey shows over 16 percent of subprime loans were "seriously delinquent," that is 90-days or more delinquent or in foreclosure, at the end of March. This is double the 8 percent rate from one year earlier and the highest on record. Furthermore, though defaults on subprime loans continue to drive the overall housing crisis, prime loans are also faltering, with the percent of seriously delinquent prime loans more than doubling from a year earlier.[1]
  • The number of borrowers who lost their homes to foreclosure soared in May. HOPE NOW estimates that 85,000 families lost their homes to foreclosure in May, the highest one-month figure since the inception of the program. This represents a 35 percent increase over three months and more than double the number from July of last year. The total number of foreclosures since the program began last July is now estimated at almost 650,000.
  • The number of borrowers who received loan modifications is small compared to the number who lost their home or who are in danger of losing their home. While HOPE NOW reported 276,000 loans either entered or completed foreclosure in May, only 70,000 received loan modifications during the month. That is, almost four times as many families lost their home or are in the process of losing their home as received loan modifications from servicers. Furthermore, the data provided by HOPE NOW understates the number of loans in foreclosure, as it only includes those homes that entered foreclosure and those that completed foreclosure during the month, not the total number currently in the foreclosure process. In fact, 1.1 million families were in foreclosure at the end of March.
  • The number of families in danger of losing their homes continues to be near record highs. According to the data released by HOPE NOW, an estimated 1,977,000 loans were 60-days or more delinquent or entered foreclosure in May, the second highest number since the program began reporting data last July. This is an astonishing 43 percent increase since July of last year.[2] This trend is consistent with the new MBA study, which shows that more than 5 percent of all loans were at least 60-days delinquent or in foreclosure at the end of the first quarter of 2008, compared to just over 3 percent a year earlier.[3]

The executive director of HOPE NOW claims "the industry has accelerated the pace at which it is helping homeowners." But the numbers show the problem's getting worse. And the fact is that nothing is known about the effectiveness of the loan modifications or workouts that are being provided by servicers. HOPE NOW gives no information on the types of modifications being completed by industry or on the performance of those newly modified loans. HOPE NOW's data provides no clue if its' members effort are resulting in long-term, sustainable solutions for homeowners.

Federal and state policymakers must take additional steps. They must 1) require better reporting from mortgage servicers about loan modifications; 2) expand the ability of FHA to help troubled borrowers; 3) allow bankruptcy courts to modify mortgages on the primary residences of financially distressed families; 4) provide temporary deferment of foreclosures until housing markets stabilize.

[1] From 0.9 percent at the end of March 2007 to 2.0 percent at then end of March 2008. National Delinquency Survey, First Quarter 2008, page 10.

[2] According to Bloomberg, foreclosure starts increased by 65 percent and bank seizures more than doubled in April from a year earlier http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7pd383j2pCo). (http://news.yahoo.com/s/ap/20080605/ap_on_bi_ge/home_foreclosures).

[3] National Delinquency Survey, First Quarter 2008, page 10.

For more information: Kathleen Day at(202) 349-1871 or kathleen.day@responsiblelending.org; Sharon Reuss at (919) 313-8527 or sharon.reuss@responsiblelending.org; or Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.

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