Foreclosure Fraud Alert-Part 2 State Foreclosure Prevention Workgroup Part 5

Delinquency and Default

At the end of January 2008, nearly a quarter of subprime and Alt-A loans were reported delinquent. The servicers reported more than 630,000 subprime and Alt-A loans delinquent by 90 days or more. As shown in Figure 1 below, the delinquency rate for 30- day and 60-day delinquencies remained relatively constant, while the 90-day delinquency rate increased by 16%. This conveys that servicers are pushing the 30-day delinquent files to the next category, then the 60-day delinquent files to the 90 days or over category. Unfortunately, this lack of loan delinquency resolution at the first signs of problems for the borrower is only leading to a pile-up of seriously-delinquent files and ultimately, foreclosure.

Figure 1. Subprime and Alt-A Delinquency Rates

Nearly 300,000 loans are currently in some stage of foreclosure, up 8% between October and January. Furthermore, 133,000 foreclosures were completed in January, a 30% increase from October 2007. In our initial report, we expressed concern about a build-up of foreclosed home inventory on local home prices. We reiterate that concern based on the trends in foreclosures and increases in loans 90 days or more past due.

Finally, although not the focus of our efforts, we note with concern the increasing level of prime delinquencies in our data, and in other publicly available data. Weakness in prime loan quality will further strain the capacity of the larger servicers that manage both prime and subprime servicing portfolios.

B. Loss Mitigation and Loan Modification Efforts

The most troubling finding from our first report was the sheer number of seriously delinquent borrowers -- 7 out of 10 borrowers – that were not in any loss mitigation process to work out their situation. This finding has remained consistent over the subsequent three months of data.

Figure 2. Comparison between seriously delinquent (60+) loans and loss mitigation in process

* Severely delinquent loan total adjusted downward to account for two servicers not reporting loss mitigations in process.

The data through January confirms the finding from our first report that servicers have increased their use of loan modifications as a tool to enable homeowners to avoid foreclosure. While loan modifications in process increased 56% between October and January, repayment plans in process decreased 17% over the same time period, but overall, the percentage of “home retention” efforts in process remained unchanged (20% of seriously delinquent loans) between October 2007 and January 2008. Thus, servicers appear to be replacing short-term repayment plans with longer-term loan modifications.

In our first report, we divided loss mitigation efforts into three broad categories: 1) those where borrower loses the home (short sale and deed in lieu); 2) those where borrower retains the home (forbearance, repayment plan, or modification); and 3) those where borrower efforts lead to resolving the delinquency (refinance or reinstatement). The trend data, as seen in Table 1 below, show no change in the relative proportions of these efforts over this four-month period.