Growing Chasm Between Words and Deeds: Lenders Still Not Modifying Loans As They Say

The "Chasm between Words and Deeds" reports provide a snapshot of whether mortgage loan servicing companies are living up to their public commitments to help borrowers avoid foreclosure. These reports reflect the experiences of nonprofit home loan counseling agencies in California who are on the front lines of the foreclosure crisis, and who are working hard to help keep families in their homes. The previous report, released earlier in 2007, focused on counselors" experiences in August of 2007, at a time when relatively little data on foreclosure prevention outcomes were publicly available. That first survey found that loan servicers were not modifying loans to any significant degree, were not conducting early outreach to borrowers facing rising mortgage payments, and were most likely to foreclose on borrowers.

Since the release of the first home loan counseling agency survey results in October, there have been increasing media reports of foreclosures, and increasing public pronouncements by politicians, industry trade associations and lenders about what is being done to solve the problem. While many of these efforts are well intentioned, the bottom line is that, on the ground, servicers are simply not helping California borrowers to avoid foreclosure to any significant degree.

This second report, The Growing Chasm between Words and Deeds, focuses on loan counselors" experiences in December 2007, a time when government officials, industry associations, and individual companies were representing publicly that great strides were being made to help borrowers in distress. CRC surveyed 38 home loan counseling agencies who served over 8,000 consumers in the month of December 2007. Sadly, after months of public discourse about the growing foreclosure crisis and the need for loan modifications, this new survey demonstrates that loan servicers" failures to meaningfully respond to the crisis continue; the servicers are neither modifying home loans on any scale nor conducting sufficient outreach to borrowers facing rising mortgage payments, and they continue to turn to foreclosure as their most common response to borrowers in distress.

With a total of 481,392 foreclosure filings on 249,513 properties during 2007, California documented the highest number of foreclosure filings and the most properties in some stage of foreclosure in the nation, according to Realtytrac. California experienced a 33 percent spike in foreclosures in December, and foreclosure filings in the fourth quarter were nearly three times the number reported in the fourth quarter of 2006.

The consequences of these growing foreclosure numbers are being felt by families who have lost their largest asset, unsuspecting tenants who have been abruptly and sometimes illegally evicted by banks that took over investor-owned homes, neighborhoods that have witnessed a further decline in property values, local governments that have suffered costs and decreased tax revenue, and the broader California economy which has taken a huge hit due to its dependence on the housing market. But did it have to be this way? Was foreclosure the only option for these servicers to take? The answer in many cases is "no," but until servicers start taking real steps to help borrowers avoid foreclosure, we can expect more of the same.