Information released by the HOPE NOW coalition, a voluntary effort by major lenders to reduce mortgage foreclosures, shows that for the first time since its inception in July 07 prime mortgage foreclosures exceeded those for subprime loans.
According to housingwire.com, the reason for this trend is that servicers prefer to rely on repayment plans when dealing with prime borrowers who fall behind, rather than modifying the terms of the loans as they do with most subprime borrowers. HOPE NOW reports that 57,822 troubled prime borrowers got a repayment plan in July, which is 72.3 percent of all workouts effected that month. While only 48 percent of subprime borrowers were stuck with similar repayment plans--servicers were more likely to offer loan modifications instead.
Housingwire.com's opinion is that this is because lenders still believe they have a shot at recouping prime borrowers' arrearages, so they push repayment plans. In addition, repayment plans allow the lenders to classify seriously delinquent loans as "current," which makes their numbers look better. But many feel the practice just sweeps the problem under the rug. Even prime borrowers end up in foreclosure when the repayment plan isn't feasible.
Kevin Kanouff, the president of Clayton Holdings Inc. theorized that servicers are using repayment plans as “one way to reduce default rolls.” Repayment plans represent "a temporary fix for the servicers if they do not fit the borrowers’ capabilities to repay. Eventually the real numbers will come out on bad plans.” Cheryl Lang, the president of Integrated Mortgage Solutions, clains repayment plans "are used to minimize or mask the 90-day-plus category of delinquencies.”
So, what can we learn from this? First, if you have a problem with your mortgage you are likely to be offered a better solution if you are a sub-prime borrower. Don't allow your lender to shove an unrealistic plan down your throat. Second, you are more likely to be successful at keeping your home out of foreclosure and saving your credit rating if you get a loan modification rather than a repayment plan. A loan modification involves changing the terms of your mortgage to something manageable. A repayment plan just means moving the past due amounts to a different loan, classifying the (still unpayable) mortgage as "current," and expecting you to pay both your mortgage and the repayment plan. How logical--let's see, the borrower is behind on the loan because he can't make the payment, so we'll help him out by giving him 2 payments to make!
If your lender suggests a plan that you know won't work, don't let their stupidity become your stupidity. Housing / mortgage counselors abound, and qualified attorneys can also help with mortgage negotiations. If your goal is to keep your home, working with your lender to create a realistic plan is your best chance at a win-win.
