More home loans slipping into foreclosure are conventional loans rather than subprime loans, according to a recent study by the State Foreclosure Prevention Working Group - attorneys general from 12 states, including Ohio’s Richard Cordray.

“The data shows that one in seven borrowers is behind in their mortgage,” Cordray said. “And hundreds of thousands of homeowners have adjustable-rate mortgages waiting to reset, ultimately sending even more into default. As our report outlines, servicers are long overdue to step up and start taking legitimate steps in reducing foreclosures. If they choose not to, the picture is grim.”

The report includes data compiled over two years by the group in cooperation with 13 large servicers of subprime mortgages.

Key finding of the report are:
• The total number of struggling homeowners not on track for any foreclosure prevention assistance is growing. Only four in 10 seriously delinquent borrowers are involved in loss mitigation programs.

• Loss mitigation as well as foreclosure assistance efforts appear backlogged. While the number of homeowners in the work-out process is at an all time high, the number of loans resolved had dipped since the implementation the federal Home Affordable Modification Program (HAMP). The ratio of loans “in process” of loss mitigation to loans with mitigation resolutions has ballooned from nearly 3-to-1 in October, 2008 to 7-to-1 in October, 2009.
• Most modifications result in payment reductions but not in principal reductions. Despite the growing number of “underwater” loans, only 9 percent of loan modifications in October, 2009 involved a reduction in the unpaid balance by more than 10 percent. More than 70 percent of modifications result in an increase in the principal amount owed.
• Prime loans are increasingly driving the rising delinquency rates.

“We’ve found that more and more loans in foreclosure are conventional prime loans rather than exotic subprime loans,” Cordray said. “As foreclosures impact a larger and larger part of society, it is even more important that servicers and investors offer long-term sustainable solutions.”

The report includes several recommendations to meet another wave of foreclosures: specifically addressing principal reduction in loan modifications, more transparency in the HAMP, and expanding housing counseling or mediation measures.

The working group consists of representatives of the attorneys general of Arizona, California, Colorado, Florida, Illinois, Iowa, Massachusetts, Nevada, North Carolina, Ohio, Texas, and Washington, three state bank regulators, Maryland, New York and North Carolina, and the Conference of State Bank Supervisors.

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