As subprime mortgage woes surged at year-end 2007, lenders moved to stem the rate of defaults. But some question the efficiency of the efforts.
In the last three months of 2007, the number of new foreclosures on Minnesota subprime home mortgages rose 52 percent compared with the first quarter of the year. But deals to modify troubled loans to keep families in their houses bounded more than fourfold, according to Hope Now, an alliance of lenders created to help troubled borrowers.
"There's an unprecedented problem facing the housing industry now that requires unprecedented solutions," said Ed Delgado, senior vice president of Wells Fargo Mortgage, one of 25 lenders that are part of Hope Now.
The lenders -- and the numbers in their report -- represent about two-thirds of all U.S. home mortgage loans.
Delgado said lenders are stepping up efforts to get in touch with troubled mortgage holders. "In general, what you'll hear in the coming weeks and months is an increased urgency in making people aware of the options," he said.
But even as Hope Now reported that 545,000 loans were modified in the second half of 2007 to offer forbearance -- 2,421 of them in Minnesota -- not all homeowner advocates were impressed with the tempo of lender efforts.
"I would say it is a leisurely pace, given the magnitude of the crisis and the rate of foreclosures," said Mark Ireland, a lawyer at the Housing Preservation Project in St. Paul.
Nearly 8,000 subprime borrowers were 60 days or more behind on payments across Minnesota in the last three months of last year, or about 13 percent of about 62,000 subprime loans, according to the Hope Now study.
The report found 7,997 Minnesota subprime mortgages were 60 days or more overdue in the last three months of last year. The state started the year with 6,316 mortgages in that category.
In fourth-quarter 2007, the number of foreclosure starts on Minnesota subprime mortgages came to 1,084, up from 712 in the first quarter.
Nationwide, Hope Now estimates that 12 percent of subprime loans delinquent 60 days or more have been modified using frozen rates, lower rates or longer repayment periods.
"That means 88 percent of the people didn't get a loan modification," Ireland said.
Communication is key
One in four foreclosure starts involved homeowners who failed to talk to lenders about their financial problems, by the count of a separate study by the Mortgage Bankers Association.
"Help is available," Delgado said. "But it's very, very critical for customers to call at the outset of delinquency. The earlier you address a problem, no matter what it is, the greater your chance of fixing it."
But lenders have reason to be cautious about what customers they help and what borrowers to put into foreclosures, said Dave Vang, a real estate professor at the University of St. Thomas.
In Vang's view, the risk for lenders, as word spreads of mortgage rates being frozen and other terms being eased for some customers, is that other homeowners will seek credit help even if they can afford to keep up mortgage payments.
"It's one thing to be on an airplane to find the guy next to you paid $300 less [for his ticket], and quite another to find your next-door neighbor is going to save $10,000 or $15,000 on his mortgage," Vang said.
Nationwide, about 13 percent of all mortgages are subprime -- made to borrowers who have checkered credit records or loans that didn't require documentation of income or downpayments.
George Karvel, another St. Thomas real estate professor, said that makes lenders particularly cautious about publicizing loan forbearance for the few without tempting the many to ask for the same.
"You have to do it without triggering a mass rewriting of the other 87 percent of the mortgages," Karvel said.
Mike Meyers • 612-673-1746