March 3, 2008: Survey Reveals Mortgage Lenders Not Fulfilling Promises

Borrowers still aren’t receiving loan modifications to keep their homes
    Home loan servicers and lenders are not working with borrowers who need loan modifications in order to keep their homes. In a second survey of California mortgage counseling agencies servicing homeowners statewide, the California Reinvestment Coalition (CRC) found that despite lenders’ promises to help borrowers, foreclosure is still the most common outcome for homeowners struggling to make mortgage payments.
    At a press conference today in Modesto, CRC released the report “The Growing Chasm Between Words and Deeds,” which analyzes a survey of 38 mortgage counseling agencies that served 8,174 borrowers in December 2007. Both this survey, and one CRC conducted in September, reveal that for the most part, lenders are not modifying loans, are not conducting proactive outreach to borrowers facing unaffordable interest rate resets, and are not facilitating positive outcomes for borrowers.
     “In these times of exploding foreclosure rates and economic instability, the most important conversation taking place day to day is the one between home loan servicers and borrowers and their representatives,” says CRC Associate Director Kevin Stein, who authored the report. “Shockingly, there are virtually no rules, no oversight, and no clear data concerning these critical —often life-changing—discussions. As a result, borrowers who may have been able to keep their homes have been forced into foreclosure.”
    Since the release of CRC’s first mortgage counseling agency survey results in October, there have been increasing media reports of foreclosures, and increasing public pronouncements by politicians, industry trade associations and lenders about what is being done to solve the problem. While many of these efforts are well intentioned, the bottom line is that, on the ground, servicers are not helping California borrowers avoid foreclosure to any significant degree.
    California housing counseling agencies that responded to the survey confirm more could have been done to keep families in their homes. They reported:

•    Twice as many borrowers in trouble. Counseling agencies reported a doubling in the number of clients they served over the last six months. The surveyed groups served approximately 8,174 consumers in the month of December alone. This was an increase of 4,091 consumers served in June of 2007.

•    Devastating borrower outcomes. A shocking 26 counseling agencies, or 72% of those surveyed, reported foreclosure as a very common outcome for their clients. This was an increase from the 19 groups who reported so four months ago. In December, a total of 34 groups, or 94% of those surveyed, said that foreclosures were a “very common” or “somewhat common” outcome for borrowers.

•    Loan modifications are not happening. Fourteen groups, or 44% of those surveyed, said loan modifications are “not common.” Seventeen of the 38 groups reported that the industry as a whole is not consistently modifying loans for long-term affordability. No groups reported that the industry as a whole was modifying loans for the long term.

•    Lenders postpone the day of reckoning. Most counseling groups reported that when servicers were willing to modify loans, they only fixed interest rates for one year at a time. “These short-term modifications simply delay the problem for another year, and are akin to giving the borrower another bad loan with a short period of affordability,” Stein says.

•    Outreach to borrowers in trouble is poor. Despite lenders’ assertions that they are reaching out to borrowers BEFORE they face problems from rising interest rates and higher monthly payments, most counseling agencies do not see this happening. A surprising 20 respondents, or 91% of the groups surveyed, reported that industry-wide, lenders were NOT making contact with borrowers before delinquency. Only two groups reported that early contact was being made with borrowers at risk of foreclosure.

•    Servicers difficult to work with. Counseling agencies were asked, “In your experience, which lenders/servicers are the most difficult to work with in trying to keep borrowers in their homes?” Twenty-three companies were named as servicers that are difficult to work with. Washington Mutual and HomEq Servicing topped the list, with nine groups reporting each of them as difficult to work with.

    The California Reinvestment Coalition released the report at a press conference today in Modesto, one of the nation’s top 10 cities hit by foreclosures. Housing counselors, borrowers, members of prominent labor unions in that area and consumer advocates were all present to express their concerns about the lack of responsiveness from lenders to keep working families in their homes. Even some of the loan servicers who signed an agreement with California’s governor to modify loans fared poorly in CRC’s survey.
    CRC and all the groups present at the press conference are calling on lenders to work harder to help borrowers avoid foreclosure. And they are demanding legislative reform to encourage loan modifications, and ensure the bad lending practices that led to the state’s foreclosure crisis don’t reoccur in the future.