Mortgage industry aided 237,000 borrowers

Mortgage companies eased terms on 54,000 loans and worked out new repayment plans on another 183,000 in the third quarter as they ramped up efforts to stave off foreclosures, an industry group said on Thursday.

The numbers compared with the 384,000 foreclosure starts reported by the industry, the Mortgage Bankers Association said. Of those foreclosures, 63 percent were on speculators, or borrowers who did not respond to help or those who failed to make payments after loan terms were already eased.

"The mortgage industry took major steps during the third quarter to help those borrowers who could be helped," said Jay Brinkmann, vice president of research at the MBA.

Loan "modifications" probably expanded in the fourth quarter amid introduction of an alliance of mortgage companies and counselors established to increase contact with troubled borrowers, Brinkmann said. A plan written by industry groups and supported by the U.S. Treasury to freeze interest rates on some adjustable loans was also enacted last quarter.

It was the first time the mortgage group collected the data from its members, who are responding to pressure to stop the dizzying rate of foreclosures that are exacerbating the housing slump and threatening the U.S. economy. By modifying loans, lenders also expect to reduce losses from selling foreclosed real estate in a sour market.

Mitigating investor losses and public calls to help stop house price declines and foreclosures outweighs the possibility that modifications can destroy borrower discipline and reward irresponsible risk-takers, the MBA said in its report.

Adjustable-rate subprime loans that sparked the mortgage crisis accounted for 13,000 of the modifications and 90,000 of the payment plans last quarter, the MBA said.

Borrowers with adjustable subprime loans accounted for 166,000 of the foreclosure actions, it said. Investors were responsible for 18 percent of those properties, while another 21 percent of the borrowers could not be contacted, it said.

DEFAULT RATE STILL HIGH

What's more, 40 percent of the adjustable subprime loan borrowers defaulted even after receiving a loan modification or payment plan, it said. That percentage rose to 60 percent or more in New Mexico, North Dakota and Vermont.

In states leading foreclosure rolls such as California, Nevada, Florida and Ohio, the percentage of failed loan plans was at or below average.

"The issues that surprised me more (were) investment properties and also the number of people that would just not respond," Brinkmann said. "Also, the number of people lenders already worked with and could not make those (new) payments."

The HOPE NOW alliance of credit counselors and mortgage servicing companies should help increase communication with borrowers, he said. But the high level of defaults after loan modifications gives credence to critics who say foreclosure programs may only delay the inevitable.

"The good news in the MBA report is that there are efforts to do something about the foreclosure crisis," John Taylor, chief executive officer of the National Community Reinvestment Coalition, said in an e-mailed statement. "The bad news is that they are not working."

The MBA report drew responses from mortgage companies that serviced about 33 million loans, or 62 percent of all loans. It included data from Countrywide Financial Corp (CFC.N: Quote, Profile, Research), which on Wednesday said it helped 81,000 borrowers keep their homes in 2007 by restructuring loans or payment plans.