Efforts to Help Homeowners Fail Their Troubled Mortgages

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Terrance Emerson/Getty Images
By Diana Olick

The number of delinquent mortgages continues to fall, but the foreclosure crisis is still taking its toll on hundreds of thousands of borrowers.

Of the approximately 952,000 borrowers who are 90 or more days past due on their monthly payments, but not yet in foreclosure, 62 percent have already been through some form of home retention program, according to Black Knight Financial Services. They are, it seems, beyond help. Home retention programs were established by lenders and the government to work with borrowers to enable them to keep their homes.

"The percentages do look significant," said Ben Graboske, senior vice president of Black Knight's data and analytics unit. He pointed to trends in the government's modification program, which has given borrowers less relief of late.

In 2010, homeowners on average could have received a $530 monthly payment reduction. That has dropped to the $450 range today. Graboske said that it is a major reason you are not seeing better performance for these homeowners today.

Banks are also getting more aggressive in pushing delinquent loans through the foreclosure process, rather than offering more modifications. As home prices rise and demand surges, banks can sell the homes more easily in today's market than they could during the height of the crisis. Retention actions are down 42 percent over past two years, but of the new modifications or payment plans, 70 percent have already been through one or even more modifications that failed, according to BKFS.

Banks are also favoring short sales more, rather than taking the home to final foreclosure and selling it. A short sale is when the bank allows the home to be sold for less than the value of the mortgage.

"The ongoing shift away from [final foreclosure] sales is a driver of improving home prices since bank-owned properties typically sell at a larger discount than short sales," noted a new report from CoreLogic (CLGX). Distressed homes accounted for 12 percent of March home sales, according to the report, down from 39 percent at the peak of the foreclosure crisis.

The numbers still vary dramatically place to place. Ironically, Washington, D.C., where the federal loan modification program was born, led the nation with 67 percent of its seriously delinquent inventory having gone through some sort of home retention activity. Maryland, Georgia, Texas and Connecticut followed with each seeing 66 percent of their 90-plus-day delinquent inventory involved in a home retention action.

The government's Home Affordable Modification Program, introduced in 2009 and recently extended, has offered just more than 1.8 million loan modifications to date. Banks and mortgage servicers have also done independent loan modifications, including millions of dollars in principal reduction and principal forgiveness.

Although the number of both delinquent loans and those in active foreclosure is down dramatically, they are still two and three times their precrisis norms, respectively, with 28 percent of the remaining foreclosure inventory located in just three states: Florida, New York and New Jersey, according to BKFS.
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