When the Working Group started collecting data in late 2007, they requested that national banks to provide data on loss mitigation efforts; however, the Office of the Comptroller of the Currency (OCC) discouraged national banks from cooperating with its efforts and instead initiated its own data collection process.

For several years now, the State Foreclosure Prevention Working Group has been

collecting data from 13 major subprime servicers on their efforts to prevent unnecessary

foreclosures. This data has enabled “The Working Group” to provide the public with extensive and transparent information on the subprime servicing industry.

When the Working Group started collecting data in late 2007, they requested that national banks provide data on loss mitigation efforts; however, the Office of the Comptroller of the Currency (OCC) discouraged national banks from cooperating with its efforts and instead initiated its own data collection process. While the Working Group preferred to work together, they accepted the OCC and Office of Thrift Supervision (OTS) public reporting of data, as it has expanded the level of information available. Unfortunately, the Working Group still finds that the level of public reporting by the OCC and OTS falls well short of what is needed. The foreclosure crisis demands the transparent publication of extensive data so that researchers and policymakers can conduct their own analysis and draw their own conclusions on the integrity and meaning of the data.

The total number of struggling homeowners not on track for any foreclosure prevention assistance continues to grow. Only four out of ten seriously delinquent borrowers are involved in loss mitigation efforts. While the HAMP program has increased the percentage of borrowers in the process of getting a loan work-out, the rising tide of delinquent loans has outpaced servicer outreach efforts. HAMP has helped to slow down the foreclosure crisis, but current efforts have been insufficient to get ahead of the foreclosure problem.

Both loss mitigation and foreclosure efforts appear backlogged. While the number of homeowners in the work-out process is at an all time high, the number of loans resolved has dipped since the implementation of HAMP. The ratio of loans “in process” of loss mitigation to loans with loss mitigation resolutions has ballooned from nearly three-to-one in October 2008 to seven-to-one in October 2009. The average time to complete a loan modification for some servicers is over six months. Similarly, the number of loans in the foreclosure process dwarfs the number of foreclosures completed.

Most modifications result in payment reductions but principal reductions remain rare. Despite the growing number of loans that are “underwater” (where the homeowner owes more than the property is worth), only 9 percent of loan modifications in October 2009 involved reducing the unpaid balance by more than 10 percent. More troubling, more than 70 percent of modifications result in an increase in the principal amount owed. Given the correlation between negative equity and likelihood of default, the failure to write down principal in connection with loan modifications is a glaring flaw in current efforts.

Prime loans are increasingly driving the rising delinquency rates. While the State Working Group reporting has focused on subprime and Alt-A performance, we note the rate of seriously delinquent prime loans in our data is rising significantly. The foreclosure problem is broad-based and not isolated to poorly underwritten or exotic loan products.

Loss mitigation programs must be improved to prioritize principal reduction in areas of significant home price declines. In some states, most notably California and Florida, a large percentage of mortgage loans are significantly underwater (e.g. loan balance is 150% of the home’s current market value). Loan modification programs that rely on monthly payment reductions alone will have limited success in creating sustainable homeownership in these states.

Homeowners Unite! We encourage you to join the Strike, the first organization in the country representing homeowner’s interest. Please sign our online petition to get the banks to negotiate a reduction in the principle amounts of our mortgages to current home values!

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