Foreclosures Hit New Record, Need Grows for Experts in Loan Workouts
U.S. foreclosure actions hit a record 243,353 cases in April, a 65% jump from a year ago, according to a recent report issued by research firm, RealtyTrac. Fed Chairman, Ben Bernanke, says as a consequence of rising delinquencies, foreclosure proceedings were initiated on some 1.5 million U.S. homes in 2007, up 53% from 2006. Bernanke adds that the rate of foreclosures is likely to be even higher in 2008. “The Federal Reserve views the current high rate of mortgage foreclosures as an urgent problem,” Fed Governor, Randall Kroszner, said at a NeighborWorks forum in Cincinnati, reports the AFP. Kroszner urges banks to adopt “workout arrangements” to help troubled homeowners stay in their homes.
Loan workouts already hit a record high in April. Statistics recently released by Hope Now, a group backed by the Bush administration to help stem the mortgage crisis, show that roughly 183,000 borrowers received some form of mortgage loan workout in April - the highest monthly level since group’s efforts began. Now, as pressure mounts to ease the housing crisis, holders of securitized subprime mortgages are being urged to restructure or workout loans that are delinquent or likely to default. Executive search firm, A.E. Feldman, says the trend is creating opportunities financial jobs and legal jobs for candidates with expertise in underwriting, restructuring, valuation and loan workouts.
Back in October, Treasury Secretary, Henry Paulson, and Housing and Urban Development (HUD) Secretary, Alphonso Jackson, assembled a private-sector group called the HOPE NOW Alliance. Members of the Alliance include Bank of America, Citigroup, Washington Mutual, and Wells Fargo. The group is attempting to bring relief to borrowers facing foreclosure by working to refinance existing loans into new private mortgages, moving borrowers into FHASecure loans (FHASecure expands the FHA’s ability to offer refinancing by giving it more flexibility to work with homeowners who have good credit histories), or freezing their current interest rates for five years.
Fed: Economic Case to Avoid Foreclosure
According to Bernanke, the economic case for trying to avoid foreclosure is strong. He also contends however that another factor is now playing an increasing role in many markets: declines in home values, which reduce homeowners’ equity and may consequently affect their ability or incentive to make the financial sacrifices necessary to stay in their homes. Bernanke concludes that a widespread decline in home prices is a relatively novel phenomenon, and lenders and servicers will have to develop new and flexible strategies to deal with this issue.
Loan Workouts on the Rise
Loan workouts jumped by 23,000 between March and April, according to HOPE NOW. The group says it has stepped up efforts to avoid foreclosures. Loan modifications accounted for 42% of total workouts in April – up 19% percent in the third quarter of 2007. Since July of last year, Hope Now says the industry has helped almost 1.6 million homeowners avoid foreclosure through workouts which include loan modifications and repayment plans. Of those, 30% were permanent modifications.
“These numbers clearly demonstrate that Hope Now is succeeding at helping homeowners avoid foreclosure and stay in their homes,” according to the group’s Executive Director, Faith Schwartz.
Lawmakers however, call the industry’s efforts inadequate. There is a push on Capitol Hill for a new $300 billion program to allow the government to back new loans for struggling homeowners. Supporters are hopeful that the measure could clear Congress as early as July 4th, according to Money.com.
