Banks Agree to Lower More Homeowner Payments
Regulators find banks are reducing more homeowners' monthly payments.
June 30, 2009— -- As the Obama administration and consumer groups have increased the pressure on mortgage providers and servicers, they have started modifying loans of homeowners on the edge at greater rates, according to a new report by two federal regulators.
The Office of Thrift Supervision and the Office of Comptroller of the Currency tracked the performance of 24 million loans valued at more than $6 trillion -- which represent 64 percent of the country's outstanding mortgages -- and found that loan modifications increased.
A higher percentage of those modifications, the report said, actually reduced monthly payments. Earlier loan modifications often did not include reduced monthly payments.
The report found that when homeowners got lower payments, delinquency rates dropped.
"While I'm very concerned about the rise in delinquent mortgages and foreclosure actions, the shift in emphasis by servicers to more sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months," Comptroller of the Currency John C. Dugan said.
Among the findings:
New loan modifications reached 185,156 during the first three months of the year, an increase of 55 percent over the previous quarter and a spike of 172 percent over this period last year. More than half of loan modifications in the first three months of the year resulted in lower monthly principal and interest payments. In more than 29 percent of loan modifications, homeowners paid at least one-fifth less on their monthly mortgage bills.
Despite the encouraging news, foreclosures continue to increase. A report released this week by the Federal Housing Finance Agency found that even with expanded foreclosure prevention efforts during the first three months of this year – including various moratoria placed on foreclosures – more people still lost their homes than got a modified loan.
One in every 398 households received a foreclosure filing in May, the third straight month the number of filings exceeded 300,000, according to a RealtyTrac report.
The problems remain most severe in the so-called "sand-states" like Nevada and California. And with the country's unemployment rate currently at a 25 year high, it may be some time before the housing sector begins to grow again.
Homeowners seeking help, meanwhile, can run into problems of access. The National Foreclosure Mitigation Counseling Program said homeowners have to wait an average of 45-60 days for responses to requests for help.
The Obama administration last week unveiled a program aimed at empowering local advocates to help homeowners get the assistance offered by the housing program. The campaign will focus on 10 housing markets hit hard by foreclosures, including Los Angeles, Las Vegas, Miami, Boston, Phoenix and Sacramento.
"More than 50 percent of all foreclosures occur without servicers and borrowers ever connecting," Treasury Secretary Geithner said in a statement last week. "With this targeted campaign, we can reach in to the communities most in need, bolster awareness of this program and help responsible homeowners take the first step toward getting relief – all steps that in turn help to stabilize the housing market and get our economy on the path to recovery."