Posted Sep 06, 2007 03:38 pm CDT
The number of mortgages entering foreclosure in the U.S. is setting new records.
One in every seven subprime borrowers is now making mortgage payments late, according to a report released today by the Mortgage Bankers Association. Meanwhile, the percentage of all mortgages entering the foreclosure process was at an all-time high of 0.65 during the second quarter of 2007, writes Bloomberg. That compares to a foreclosure rate of 0.58 percent during the first three months this year.
This is the third consecutive quarter in which the number of mortgages entering foreclosure has set a new record, notes the Associated Press.
Earlier this week, a group of federal and state regulators issued a joint statement urging lenders to work with delinquent borrowers and help them catch up rather than foreclose on their mortgages. While this guidance doesn’t have the force of law, it does signal to banks and other lenders that government agencies will try to avoid negative tax and accounting consequences for those who promote work-out arrangements for borrowers, reports the Wall Street Journal (sub. req.).
Extending the term of the mortgage, for instance, or even reducing the principal balance due can make economic sense, because foreclosing typically costs a lender 20 to 40 percent of the loan amount, according to the Chicago Tribune.
“What you really need is reduction in principal and reduction of the interest rates, reforming those contracts and rewriting the loans down to where they are affordable for people,” says Dan Lindsey, an attorney who supervises a Legal Assistance Foundation of Chicago home preservation project. “Now, lenders aren’t willing to do that unless we sue them. They dig in their heels and fight, and two years later they realize they’re spending all their money on litigation.”