The Obama administration’s foreclosure help program can cut mortgage lenders’ losses from home loans, an Indiana law professor says. But he wonders why lenders are not modifying as many loans as they can under the federal foreclosure help program.
Alan M. White, law professor at Indiana’s Valparaiso University, said that in November last year, lenders’ losses from foreclosures averaged more than 56 percent of the loan balance while in February, lenders’ losses increased to more than 64 percent.
Last June, the average loss of lenders from foreclosures was nearly 65 percent of the loan balance.
White studied 3.5 million Alt-A mortgage loans and subprime loans in mortgage-backed securities managed by Wells Fargo. These were home loans originated from 2005 to 2007 and they include loans handled by five largest loan servicers in the country, including Chase Home Finance, Litton Loan Servicing and Bank of America.
White found that after loan modifications reached their highest level of nearly 24,000 home loans in February, loan modifications declined in all the following months except one month. In May, lenders modified 19,041 loans while in June, lenders modified 18,179 loans.
White said that lenders should have modified as many as they could in May and June to help give momentum to the federal foreclosure help program.
In the meantime, foreclosures were increasing sharply. In June, over 281,000 mortgages were in the foreclosure process, more than the nearly 278,999 foreclosure filings in May. In January, about 242,000 home loans were in line for foreclosure.
Despite the declaration by John C. Dugan, chief of the Office of the Comptroller of the Currency, that the number of loan modifications in the first quarter improved in the first quarter by 55 percent, White said that the Obama administration’s foreclosure help program has not achieved significant progress in helping distressed American homeowners.
Some housing analysts said that the home loan data studied by White was different from the home loan data analyzed by the Comptroller of the Currency. Data from Wells Fargo had no prime loans while the OCC data had both prime and subprime loans.
Using Wells Fargo data, White found that 58 percent of the loans modified in June reduced payments by an average of $173 a month.
In addition, White said lenders lost a staggering total of $4.59 billion from sales of foreclosures in June. He said he is perplexed why lenders prefer to lose such a staggering amount when they can modify loans under the federal foreclosure help program and help cut their losses and, more importantly, help Americans keep their homes.
Posts 