Regulators: Lenders Must Expand Subprime Help

Home mortgage lenders acknowledge that lowering borrower's interest rates can prevent foreclosures, but new numbers released Tuesday tell a different story. Despite efforts to motivate lenders to renegotiate subprime loans, only a small proportion of borrowers have actually been able to renegotiate their mortgages.

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A new study on the foreclosures shows that the majority of struggling homeowners are not getting help from their lenders in working out new mortgage terms. Lenders have even said it can make sense to do that if it avoids a costly foreclosure, but a group of state regulators say it's just not happening often enough.

NPR's Chris Arnold reports.

CHRIS ARNOLD: There've been all kinds of programs and plans to help the more than a million homeowners facing foreclosure. There's the Bush administration's Hope Now Alliance. Most of the major banks have pledged to work with borrowers. But a group of state regulators that's been keeping tabs on the industry says the numbers are not good.

Mr. MARK PIERCE (Deputy Commissioner of Banks, North Carolina): Seven out of 10 troubled homeowners fell through the cracks in a mortgage servicing system.

ARNOLD: Mark Pierce is North Carolina's deputy commissioner of banks. He says most people are not getting any help.

Mr. PIERCE: Those are homeowners that are not on track for any sort of loan workout with their mortgage company.

ARNOLD: Pierce says the lenders need to hire more people who have the authority to modify loans. Some borrowers have loans that are at 10 or 12 percent interest rates, but they can only afford a rate of 6 or 7 percent. Others just owe more than their house is worth. And even in some of those cases, lowering their overall loan amounts can be good for both homeowners and most of the investors who own the loans. That's because foreclosures can cost the investors upwards of $50,000.

Mr. PIERCE: There are a lot of loans that are going to go to foreclosure that don't need to go to foreclosure.

ARNOLD: Industry officials say they're doing their best. They say many borrowers don't contact them or return their calls when they do try to offer help. Paul Richman is the vice president with the Mortgage Bankers Association.

Mr. PAUL RICHMAN (Vice president, Mortgage Bankers Association): We're doing everything we can to reach out to the borrower and trying to encourage them that they have nothing to fear by calling and talking to the lender, that it's not something to be ashamed of to talk to their lender if they're in the situation. It's the only way to achieve a solution.

ARNOLD: The numbers in the new report show that the lenders actually have been helping more homeowners - 50,000 more people in January compared to October. But the number of borrowers in trouble is rising just as quickly, so the regulators say lenders need to expand their efforts dramatically to make any headway.

Richard Neiman is New York's superintendent of banks.

Mr. RICHARD NEIMAN (Superintendent of Banks, New York): The fact that servicers are not keeping pace with the level of delinquencies is clearly distressing.

ARNOLD: Neiman says lenders are still dealing with all this on a time-consuming case-by-case basis that often drags on for months for each borrower.

Mr. NEIMAN: There needs to be, you know, more creative types of solutions, more innovative and systemic approaches to loan modifications, where we can treat like borrowers in like ways.

ARNOLD: The regulators trying to pressure the industry have some leverage, in part because they're working with state prosecutors.

Mr. TOM MILLER (Attorney General, Iowa): Litigation has always been a possibility here.

ARNOLD: Tom Miller is the attorney general of Iowa. He's sued mortgage lenders in the past and won huge settlements. He wants to see the industry work with more homeowners voluntarily.

Mr. MILLER: If that doesn't achieve significant results, then we would look at any form of litigation that would benefit homeowners.

ARNOLD: Meanwhile, the report tracked 133,000 foreclosures completed in January alone.

Chris Arnold, NPR News.

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