Amie Breton
(617) 727-2543

MARTHA COAKLEY

ATTORNEY GENERAL

              The State Foreclosure Prevention Working Group, which was formed last summer, is a joint initiative of 37 states Attorneys General and the Conference of State Bank Supervisors (CSBS.)  The group’s main objective is to work with subprime mortgage loan servicers to reduce the number of foreclosure by encouraging loan modifications and other sustainable long term solutions.  The report includes data on loss mitigation efforts by 13 major residential mortgage servicers.  Loss mitigation includes a range of foreclosure prevention approaches, from repayment plans to modification of loan provisions.

              The report notes that foreclosure prevention continues to fall short, despite widely-publicized campaigns to encourage homeowners in trouble to seek help, and initiatives by servicers to fast-track loan modifications.

              “Foreclosures are costly, further reduce real estate values, and harm not only borrowers, but also neighborhoods and communities,” said Attorney General Coakley.  “In most cases, and particularly where mortgage loans contain payment terms that were not structured to be sustainable in a real estate downturn, loan modification and other loss mitigation should be done much more actively.  The number of borrowers in loss mitigation has increased but those gains have been matched by an increasing level of delinquent loans.”

              The release of the report comes shortly before the Act to Preserve Home Ownership’s new “Right to Cure” provisions take effect on May 1, 2008. The provision, part of a law enacted by the Legislature and signed by Governor Deval Patrick last year, requires a “mortgagee,” or lender, to provide notice and a 90-day “right to cure” period to borrowers before taking foreclosure measures.  This cure period creates an opportunity for the lender and borrower to prevent foreclosure by exploring alternatives appropriate to the borrower's circumstances, such as modification of loan terms.  

              The states’ report, which summarizes data from a group of the largest mortgage servicers for the period of October 2007-January 2008, outlines several key findings.  Major findings of the Foreclosure Working Group included:

• 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 [October 2007—January 2008], this large gap suggests a more systemic failure of servicer capacity to work out loans,” the report says.
• 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 suggest 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 says.  “We fear this will translate to increased levels of vacant foreclosed homes that will further depress property values and increase burdens on government services.”
• 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 report noted “in major respects, the subprime servicing data for January 2008 is nearly unchanged from October 2007.”

              In addition to these findings, the report also makes a number of recommendations to address some of these issues.  Specifically, the working group said servicers, investors and state officials should work together on:

• 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 says.  “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 says it “will continue to work with servicers to promote systematic solutions to modify loans in a more streamlined and efficient manner.”
• 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 says.  Many states, including Massachusetts, have enacted such measures, or are considering doing so, the report notes.

              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 % of subprime mortgage loans serviced.

              The working group noted that some national banks refused to provide servicing data, with two banks citing the advice of the Office of the Comptroller of the Currency (OCC).  On February 29, 2008, 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.

              The State Foreclosure Working Group is led by representatives of the Attorneys General of 11 states (Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas), two state banking departments (New York and North Carolina), and the Conference of State Bank Supervisors.

View PDF copies of the reports prepared by the State Foreclosure Prevention Working Group:

• Analysis of Subprime Mortgage Servicing Performance Data Report 1
• Analysis of Subprime Mortgage Servicing Performance Data Report 2

              Assistant Attorney General Christopher Barry Smith, Chief of Attorney General Coakley’s Consumer Protection Division, is Attorney General Coakley’s designee on the State Working Group.

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