But it’s been the growing plight of prime-credit borrowers that has, more than anything, stood out in the monthly HOPE NOW datasets. And that’s a disparity that isn’t going to go away overnight, even if evidence now suggests it is improving ever-so slightly.
In particular, loan modifications represented 30.8 percent of all workouts offered to prime borrowers in Oct.; among subprime borrower workouts, 56.8 percent were loan modifications. In Sept., those percentages were at 29.8 percent and 58.6 percent, respectively. The disparity suggests in many ways that the political help and attention given to those least likely to be able to afford their mortgage has paid off, while many better-credit borrowers have been left to wither on the vine.
As we’ve suggested before, it’s awful hard to argue that subprime borrowers need assistance because they were targeted by unscrupulous lenders when even those with a better credit profile are running into the same sort of difficulty paying their mortgage; and the data suggests, as well, that those with lesser credit profiles are often receiving the most assistance, to boot.
Repayment plans have been largely panned by critics who have said that their use often doesn’t prevent a default, and merely provides the sort of reporting wiggle room needed to massage default statistics for investment pools; in particular, to limit roll rates. Most pooling & servicing agreements limit the use of loan modifications, but place no such restrictions on the use of repayment plans, as HousingWire covered in a story in January of this year (see below).
That said, progress is clearly being made to shift more focus to prime borrowers in distress. HOPE NOW’s data shows a more than 10 percent increase in the number of prime modifications on a month-to-month basis since September. The data also shows a 9.9 percent monthly decrease in all foreclosure sales — not surprisingly, as a result from recent foreclosure moratoria.
Over the past three months, according to the data, the number of modifications has increased by 24 percent while the number of payment plans has increased by 9.8 percent, a trend that Faith Schwartz, HOPE NOW’s executive director, said indicated the industry’s focus towards keeping borrowers in their homes.
“The growing use of loan modifications is not an accident,” Schwartz said. “The U.S. economy is still troubled and that means that changing the terms of a loan is an increasingly appropriate way to keep more homeowners in their homes.”
From the American Banker:
According to these observers, widespread use of repayment plans is keeping serious delinquency rates artificially low. For example, a loan classified as 30 days past due will not progress to the 60-day category as long as it is on a repayment plan; a 60-day delinquency put on a plan will not move to the 90-day category, and so on …
Kevin Kanouff, the president of the Clayton Holdings Inc. unit, said servicers are using repayment plans as “one way to reduce default rolls.”
Repayment plans are “only a temporary fix for the servicers if they do not fit the borrowers’ capabilities to repay,” he said. “Eventually the real numbers will come out on bad plans.” …
Cheryl Lang, the president of Integrated Mortgage Solutions, a Houston consulting firm, said, “Many times, repayment plans are used to minimize or mask the 90-day-plus category of delinquencies.”