Modifications Rise Despite Subprime, Prime Disparity

The gap is slowly being closed — despite continuing evidence that prime borrowers are less likely than their subprime counterparts to receive a loan modification, data from industry coalition HOPE NOW on Tuesday suggested that at least some progress is being made to close the gap. Overall, the coalition said that servicers had executed more than 225,000 workouts foreclosures in October, 13,000 more than the record set last month. 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. 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.” — Paul Jackson contributed to this story. Write to Diana Golobay at [email protected].