Working Group Releases Second Report on Sub Prime Crisis

April 22, 2008

The State Foreclosure Prevention Working Group, a group of state attorneys general and banking regulators working to prevent home foreclosures, issued a report Tuesday concluding that efforts have increased but are falling far short of the need to address the foreclosure crisis and prevent millions of unnecessary foreclosures. A copy of the full report entitled ?Analysis of Subprime Mortgage Servicing Performance? is available on the Maine Attorney General?s website at Report data was collected from 13 of the largest subprime mortgage servicers across the nation for the period October 2007 through January 2008.

The State Working Group, of which Maine is a member, concluded that industry measures to keep homeowners out of foreclosure are barely keeping pace with the rising rate of homeowners in trouble, according to state officials. The number of borrowers in loss mitigation has increased, the officials said, but those gains have been matched by an increasing level of delinquent loans.

?This report shows that while progress is being made, more work needs to be done to help people who face the very real possibility of losing their home,? said Maine Attorney General Steve Rowe. ?This is further evidence that current remedies are not adequate to meet the needs of most borrowers who are caught up in the credit crisis.?

?The collective efforts of servicers and government officials to date have not translated into meaningful improvement in foreclosure prevention outcomes,? the report said, despite widely-publicized campaigns to encourage homeowners in trouble to seek help, and initiatives by servicers to ?fast-track? loan modifications. ?In major respects, the subprime servicing data for January 2008 is nearly unchanged from October 2007.?

Major findings of the Foreclosure Working Group included:

C Seven out of ten seriously delinquent borrowers are still not on track for any loss-mitigation outcome. The number of borrowers in loss mitigation has increased, but it has been matched by an increasing level of delinquent loans; thus, the relative percentage has remained about the same. ?Given creative servicer outreach efforts and increased public awareness of the HOPE Hotline during this time period [Oct.-Jan.], this large gap suggests a more systemic failure of servicer capacity to work out loans,? the report said.

C Data suggests that servicers? loss-mitigation departments are severely strained in managing the current workload. The report noted that almost two-thirds of all loss-mitigation efforts started are not completed in the following month. ?We are concerned that servicers overall are not able to manage the sheer numbers of delinquent loans,? the report said. Data suggests that ?the burgeoning numbers of delinquent loans that do not receive loss-mitigation attention are clogging up the system on their way to foreclosure,? The report said. ?We fear this will translate to increased levels of vacant foreclosed homes that will further depress property values and increase burdens on government services.?

C Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification. The Group said such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans. Many servicers are replacing their use of repayment plans in favor of loan modifications.

The State Working Group said servicers, investors and state officials should work together on:

C Developing a more systematic loan work-out system to replace the intensive, individual, ?hands-on? loss-mitigation approach. ?Initial efforts to develop systemic approaches are far too limited to make a difference in preventable foreclosures,? the report said. ?Without a systematic approach, we see little likelihood that ongoing efforts will make a serious dent in the level of unnecessary foreclosures.? The State Working Group said it ?will continue to work with servicers to promote systematic solutions to modify loans in a more streamlined and efficient manner.?

C Slowing down the foreclosure process to allow for more work-outs. ?Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure,? the report said. Many states have enacted or are considering such measures, the report noted.

The State Working Group also encouraged the federal government to develop innovative approaches that recognize the extent and scale of the foreclosure crisis.

The State Working Group began as a cooperative dialogue of state officials and mortgage servicers in September 2007. Since October 2007, the Working Group has been collecting data from the largest subprime mortgage servicers, with 13 of the largest 20 servicers participating, representing approximately 60 percent of subprime mortgage loans serviced.

The state officials noted that some national banks have refused to provide servicing data to the State Foreclosure Prevention Working Group, with two banks citing the advice of the Office of the Comptroller of the Currency (OCC). On February 29, the Comptroller announced that some of the largest national banks will be providing mortgage servicing data to the Comptroller on a monthly basis.

The State Working Group encouraged the Comptroller to aggregate and publish such national bank data to complement the work of the States and provide a complete view of trends and effectiveness of efforts to avoid foreclosures.


NEWS RELEASE April 22, 2008 Linda Conti (207) 626-8591