We have divided loss mitigation activities into three broad categories: 1) mitigations where the borrower loses the home (short sale and deed-in-lieu); 2) mitigations where the borrower retains possession of the home (forbearance, repayment plan, and modification); and 3) mitigations where the borrower’s effort leads to resolving delinquency (refinance and reinstatement). Table 2 below shows that, through May, an increasing number of loss mitigation efforts result in the borrower losing possession of the home, while modifications where the borrower retains possession of the home have shrunk. The numbers of borrowers resolving delinquencies on their own declined moderately in this period.⁴ 

Table 2. Loss Mitigation Efforts as Percent of Seriously Delinquent (60+ days) Loans

More specifically, between January and May, the numbers of borrowers losing their homes through deeds-in-lieu increased and those losing their homes through short sales increased by 54%. During the same period, the numbers of borrowers retaining their homes through forbearance decreased modestly by 6%, borrowers retaining their home through repayment plans decreased by 34%, and borrowers retaining their homes through loan modifications decreased by 28%.

Compared to last year, homeowners struggling to make their mortgage payments are less likely to receive loss mitigation assistance or to be able to retain their home through their own efforts. More homeowners are working with their servicer on options that require them to sell their home. These trends highlight the need for new servicing tools and approaches to increase the percentage of homeowners receiving assistance and to keep more of them in their homes.

Closed Loss Mitigations

Despite the declining trend in the numbers of borrowers retaining their homes through loss mitigation, a majority of borrowers that receive loss mitigation are able to retain their homes, as seen in Table 3 below. Consistent with our prior reports, many more homeowners find a way to reinstate their loans than would be predicted by the initial loss mitigation indication. In addition, the percentage of short sales in process highlights the shift of loss mitigation efforts toward home loss. As noted earlier, we believe that the modification programs offered by servicers have reached only a limited pool of homeowners wanting to stay in their home, and instead of improving and expanding their programs to promote home retention, servicers have increased efforts directed to short sales, as a cheaper and quicker alternative to foreclosure.

4  A recent survey of major subprime lenders suggests that non-FHA subprime lending has almost disappeared, with only five major lenders making subprime loans. Subprime Originations All But Vanished in 2nd Quarter of 2008, Inside B&C Lending (Aug. 29, 2008) at p. 1.