The San Francisco based coalition surveyed 33 of California’s 80 mortgage counseling agencies who collectively had worked with about 9,800 consumers in August.
They found that the most common outcome for agency clients overall was foreclosure, followed by a short sale, which results when a home is sold for less than the existing mortgage balance.
Only one agency actually reported loan modifications as a common outcome for homeowners seeking assistance.
Contrary to what many banks and lenders are preaching, the study found that loan modifications seem to be much less common than previously thought.
“Lenders are all saying the right things: ‘It makes no sense for us to foreclose, we don’t want to foreclose, we lose money when we foreclose, we want to keep borrowers in their homes, we know we have to do workouts and loan modifications,’ ” said Kevin Stein, associate director of the coalition.
“The most striking thing that came out of this (study) is that there is a huge chasm between what the lenders are stating, which very well may be their policies, and what’s happening on the ground. That clearly works to the detriment of homeowners and their communities.”
The coalition is urging banks and lenders to do more to prevent foreclosures and help more borrowers stay in their homes.
They need to be “more aggressive, creative and flexible in dealing with borrowers to keep them in their homes,” Stein said.
The group has offered a variety of recommendations to improve conditions, including offering loan modifications across the board, freezing interest rates, requiring lenders to report how many loans result in modifications and foreclosures, increasing funding for counseling agencies, and creating a program to sell foreclosed homes to nonprofit groups for affordable housing.
Unfortunately, many homeowners don’t receive help until their loan is already in default, which makes it difficult to modify the loan as the borrower’s credit score takes a hit.
A recent study from Moody’s Investors Service released in September looked at 16 loan servicers that handle $950 billion of subprime mortgages, or roughly 80 percent of the market.
Moody’s found that only 1 percent of borrowers with mortgage rates that reset higher in January, April and July received assistance from their bank or lender to make their mortgage payments more affordable.
Last week, FDIC Chairman Sheila Bair proposed a sweeping solution to freeze teaser rates so borrowers wouldn’t be struck by payment shock when rates reset.
Adjustable-rate mortgages worth a record $50 billion are scheduled to reset to higher payments this month, while roughly 1.3 million subprime ARMs are due to reset between now and the end of 2008.