Too Little, Too Late?

These six lenders have agreed to reach out to seriously delinquent homeowners, but many who lose their homes never talk to the bank servicing their mortgage beforehand. Why is that?
Historically, 50 percent of all people who have gone to foreclosure in years past have had no contact with their servicer. That is the magnitude of the challenge. There are a lot of reasons … They're embarrassed, they think they can work it out on their own, or they feel nothing can be done. In some cases focus groups have found that homeowners think it would only accelerate the foreclosure process. Couple that with how servicers have historically worked with homeowners—mostly interacting on the collection end. And the collection approach, unfortunately, is just designed to get a payment and not to seek a permanent solution to the problem … Also, there are some investor owners and those who may have speculated on the market, and a lot of these programs [including Project Lifeline] are not available to them.

I understand more than 200,000 people facing foreclosure have called the hotline since it was created last summer. Are both subprime and prime borrowers calling?
The numbers are [up]—a combination of more and more people getting into trouble and more folks learning about these services. The general trend does suggest that borrowers above and beyond just subprime borrowers are calling in greater numbers.

What else should lenders do now to help solve the housing crisis?
Extending this program to other servicers would be an immediate first step … More aggressive modifications on the part of servicers would also be helpful.

What kind of modifications?
Now that we have a better handle on the scope and scale of the problem, lenders are going to have to do more to extend interest-rate freezes [on mortgages] for consumers and do principal write-downs to create sustainable homeownership.

What kind of write-downs are we talking about?
It would vary market by market. If you lived someplace like Michigan or Indiana, for example, where housing values have declined over the last year anywhere from 20 to 30 percent, we'd be talking about a significant write-down. In other markets, where the home values declined less, you'd need to go less of that distance. Lenders are in a position to do that kind of market analysis.

Are we just talking about subprime mortgage borrowers here?
I would think this is something to look at across the board. Part of the challenge that lenders have with all loans is whether the existing collateral [the current value of the home] supports the principal balance of the loan [what the homeowner still owes in principal, not including interest]. In many cases, lenders have taken write-downs because they evaluated their portfolios and determined that the value is no longer what they'd assumed it to be when the loan was made. This is a pretty broad-based phenomenon.