NEW YORK (CNNMoney.com) -- Hope Now, the foreclosure prevention coalition put together with the Bush administration's support, claims dramatic success in helping at-risk mortgage borrowers stay in their homes.
It has reworked more than 1 million mortgage loans since July, the coalition reported on Monday. And those number are growing quickly.
"Hope Now's progress is accelerating," said Treasury Secretary Henry Paulson, in a speech before the National Association of Business economists on Monday.
"Loan modifications alone increased 19% from December to January. By comparison, foreclosure starts increased just 5% during the same period. I am encouraged that the number of borrowers receiving help is rising faster than the number entering foreclosure."
In the speech, Paulson reiterated the administration's opposition to any government led bail out of lenders.
Paulson was encouraged by the increase in loan modifications, in which lenders reduce interest rates, balances or both to make loans more affordable; they grew at a much faster rate than did simple repayment plans.
With repayment plans, lenders merely allow borrowers to make up missed payments, which does little to make to make loans any more affordable for hard-pressed borrowers.
Of the 1.035 million borrowers Hope Now helped, 278,000 of the work outs were mortgage modifications. But modifications accounted for nearly half of all subprime loan workouts in January. In the last three months of 2007, only 35% of subprime loan work-outs were actually modifications, and in the three months ended September 30, only 19% of work outs were modifications.
"The number of loans being modified shows progress," said Austin King, director of the Financial Justice Center for the Association of Community organization for Reform Now (Acorn), "but it's still not enough."
"The majority of the work-outs are still repayment plans, which are not going to [keep people out of foreclosure]," said King. "The reliance on repayment plans is one of the biggest failings of the lenders."
When borrowers are stretched so thin that a financial setback, such as unexpected medical bills or temporary job loss, puts them behind on payments it means they really don't have enough income to keep up their mortgage payments. And tacking on missed payments on just makes things worse, according to King. Many of those loans will default again.
Even many mortgage modifications have shortcomings and may also simply delay default. If low teaser rates on hybrid adjustable rate mortgages are simply extended for a year or two, borrowers may still fall behind when the rates do finally reset, according to King.
"For modifications to work, they have to make the loans more affordable [permanently]," he said. See Also
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