Are Foreclosure Modifications Helping Borrowers?

In case you have been wondering if lenders are really helping borrowers stay out of foreclosure, we now have the answer -- and it's not encouraging.

On Monday, the Foreclosure Prevention Working Group issued its third quarterly report, covering February through May, 2008. The report concluded that industry measures to keep homeowners out of foreclosure have decreased. "Nearly eight out of ten seriously delinquent borrowers are not on track for any loan work-out or loss mitigation assistance to enable them to avoid foreclosure....Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer, a reality that is growing worse rather than better, as the number of delinquent loans, prime and subprime, increases."

The report also said that new efforts to prevent foreclosures are on the decline, suggesting that loan modification approaches have now been tailored to a limited group of homeowners. Instead of expanding loan modification for a broader set of homeowners, mitigation efforts are being focused on selling homes before foreclosure, rather than helping people stay in their homes.

For those who have received help, there is also discouraging news. The report finds that one out of five loan modifications made in the past year is currently delinquent. Thus it would appear that a significant number of modifications offered to homeowners have not been sustainable. Recent reports indicate that many loan modifications are not providing any monthly payment relief to struggling homeowners. The report expressed a concern that unrealistic or 'band-aid' modifications have only exacerbated and prolonged the current foreclosure crisis.

The report concludes "While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing."