By : Darren Waggoner, Collections & Credit Risk
The State Foreclosure Prevention Working Group (SFPWG) recently released a study showing that as many as 60% of mortgage borrowers did not have their accounts forwarded to the mortgage lenderís loss mitigation department after becoming 60 days or more late on their payments.
The figure, while historically high, may be understandable in the current economic climate.
Many borrowers in the study had seriously delinquent accounts that lenders did not take action on. Part of the reason may be because there are so many foreclosures going on right now that banks are not as quick to put a borrower through foreclosure without giving them ample time to catch up on payments.
Since October 2007, there have been more than 2.3 million foreclosures and giving borrowers some extra time to get back on their financial feet is often the only thing needed to help them get back on track.
Loan modifications are another option for troubled homeowners. In many cases, it provides the mortgage borrower the opportunity to get lower mortgage rates. According to the SFPWG, mortgage borrowers who modified their home loans last year are about half as likely to have seriously delinquent account six months following their modification than those troubled homeowners who modified their home loans in 2008.
This shows that homeowners are more likely to take their second chance more seriously than they do their first chance. Possibly, once they find themselves in trouble with their home loan and get help with it, they make a more concerted effort to stay out of that trouble again. Of course, many home loan modifications lower payments so this also helps mortgage borrowers stay in their homes rather than letting them become delinquent and go through foreclosure.
The State Foreclosure Prevention Working Group is made up of representatives of 11 state Attorneys General, two state banking departments and the Conference of State Bank Supervisors.
In a related report by the Mortgage Bankers Association, in the second quarter of this year, the percentage of mortgages with one overdue payment rose, the first gain in early delinquencies in more than a year, as economic growth slowed and jobless claims increased.
Home loans overdue by a month climbed to 3.51%, from 3.45% in the first quarter, according to the report. The increase was led by mortgages guaranteed by the Federal Housing Administration. The one-month late rate for that type of home loan rose to 5.77% from 5.54%.
The gain suggests a slowing economy may increase foreclosures as mortgage holders lose their jobs, says Jay Brinkmann, chief economist of the group. New unemployment claims, measured as a monthly average, rose throughout the second quarter after falling in most of the prior period, according to data from the Labor Department in Washington.