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Survey Suggests Lenders are Not Working to Prevent Foreclosures

Policymakers have been encouraging lenders to use loan modifications to help homeowners who are facing foreclosure. Although many lenders have claimed publicly that they are doing just that, a survey by the California Reinvestment Coalition says otherwise.

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Common Outcomes for Borrowers Facing Foreclosure

Outcome	Rated Very Common
Foreclosure	19
Short Sale	11
Forbearance Agreement	8
Loan Refinance	1
Loan Modification	1

Source: California Reinvestment Coalition Survey

To determine whether or not lenders are actually using loan modifications to help homeowners, the California Reinvestment Coalition surveyed 33 of the 80 HUD certified mortgage counseling agencies located across the state of California. These agencies serviced a total of 9,800 homeowners during the month of August alone.

Through the survey, the Coalition found the lending industry (as a whole) is not utilizing loan modifications like they claim to be. Of the 33 agencies surveyed only one reported that loan modification is a 'very common' outcome for homeowners facing foreclosure. The others listed foreclosure as a very common outcome, followed by short sales and forbearance agreements.

(The 33 agencies surveyed were allowed to check more than one box when responding to 'what is considered a very common outcome', which is why the numbers add up to more than 33.)

A total of 21 agencies reported that refinances were 'not common'. Loan modifications also fell into the 'not common' category more often than not.

The Worst Offenders

Rank	Lender / Servicer
1	Countrywide
2	Merrill Lynch
3	Washington Mutual
4	Wells Fargo
5	Chase
6	Ocwen
7	Nova
8	Option One
9	Gateway
10	GMAC
11	Litton
12	Specialized Loan Servicing
13	HSBC

Counseling agencies labeled 13 lenders/servicers as 'difficult to work with in trying to keep borrowers in their homes'. Countrywide, Merrill Lynch, Washington Mutual, and Wells Fargo were named most frequently (5 times each). Citibank was considered to be the lender most willing to work with delinquent borrowers.

Talk vs. Effort

With delinquencies mounting--more than 2 million people are expected to face foreclosure in the U.S. in the next two years--lenders and loan servicers have been under pressure to take responsibility and keep people in their homes.

Many of them have declared their willingness to do so in public statements and during meetings with various counseling agencies. The talk, however, doesn't seem to be matching up with efforts according to the Coalition survey.

And because lenders/services are under no obligation whatsoever to provide either consumers or policymakers with verifiable data about loan modifications, it is very hard to tell whether or not the entities are making a real effort to clean up the mess they helped to create.

The Coalition is suggesting a change of policy that will require servicers to semiannually report loss mitigation outcomes, such as loan modifications, refinances, short sales, forbearance agreements, and foreclosures.

It's a wonderful idea, but will it ever be a reality?

Probably not. Such a policy would require both accountability and transparency on the part of lenders/servicers. If the most recent credit bubble has taught us anything, it is that the lending industry is neither of those things.