New reports from lenders show that families falling behind on their mortgage payments, as well as those facing imminent foreclosure, have reached record highs. The trend indicates the mortgage crisis continues to worsen and is overwhelming the industry's voluntary efforts to help borrowers renegotiate unaffordable home loans. The market has shown that it cannot fix itself. Federal and state policymakers need to do more to hold lenders accountable and stem the foreclosure crisis that is damaging our economy.

According to the Mortgage Bankers Association's National Delinquency Survey,  coupled with the most recent numbers from HOPE NOW:  

• Seriously delinquent loans are at a record high for both prime and subprime loans.  The MBA survey shows over 16% of subprime loans were "seriously delinquent," that is 90-days or more delinquent or in foreclosure, at the end of March.  This is double the 8% rate from one year earlier and the highest on record. Furthermore, though defaults on subprime loans continue to drive the overall housing crisis, prime loans are also faltering, with the% of seriously delinquent prime loans more than doubling from a year earlier.[1]  

• The number of borrowers who lost their homes to foreclosure soared in April.   HOPE NOW estimates that 81,000 families lost their homes to foreclosure in April, the highest one-month figure since the inception of the program. This represents a 13% increase over three months and almost double the number from July of last year.  The total number of foreclosures since the program began last July is now estimated at over 570,000.

• The number of borrowers who received loan modifications is small compared to the number who lost their home or who are in danger of losing their home.  While HOPE NOW reported 285,000 loans either entered or completed foreclosure in April, only 77,000 received loan modifications during the month.  That is, almost four times as many families lost their home or are in the process of losing their home as received loan modifications from servicers.  Furthermore, the data provided by HOPE NOW understates the number of loans in foreclosure, as it only includes those homes that entered foreclosure and those that completed foreclosure during the month, not the total number currently in the foreclosure process. In fact, 1.1 million families were in foreclosure at the end of March.

• The number of families in danger of losing their homes continues to rise. According to the data released by HOPE NOW, an estimated 2,056,000 loans were 60-days or more delinquent or entered foreclosure in April, the highest number since the program began reporting data last July.  This is a 4% increase from three months earlier and an astonishing 48% increase since July of last year.[2]  This trend is consistent with the new MBA study, which shows that more than 5% of all loans were at least 60-days delinquent or in foreclosure at the end of the first quarter of 2008, compared to just over 3% a year earlier.[3]

The executive director of HOPE NOW claims the newest data on the program's voluntary workouts by servicers "clearly demonstrate that HOPE NOW is succeeding at helping homeowners avoid foreclosure and stay in their homes."  Beyond the fact that, as we've shown, the problem continues to worsen despite voluntary efforts, nothing is known about the effectiveness of the loan modifications or workouts that are being provided by servicers. HOPE NOW gives no information on the types of modifications being completed by industry or on the performance of those newly modified loans.  Consequently, there is no way to know whether these voluntary modifications are resulting in long-term, sustainable solutions for homeowners.

Policymakers need to take action to help delinquent homeowners, such as 1) requiring better reporting from mortgage servicers about loan modifications; 2) expanding the ability of FHA to help troubled borrowers; 3) allowing bankruptcy courts to modify mortgages on the primary residences of financially distressed families; 4) providing temporary deferment of foreclosures until housing markets stabilize.

[1] From 0. 9% at the end of March 2007 to 2.0% at then end of March 2008. National Delinquency Survey, First Quarter 2008, page 10.

[2] According to Bloomberg, foreclosure starts increased by 65% and bank seizures more than doubled in April from a year earlier ). (http://news.yahoo.com/s/ap/20080605/ap_on_bi_ge/home_foreclosures).http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7pd383j2pCo

[3] National Delinquency Survey, First Quarter 2008, page 10.

About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.