Countrywide Financial Corp. announced today it’s partnering with the community group ACORN to engage in workouts with subprime borrowers — even if they are already in default, and regardless of whether they have fixed- or adjustable-rate mortgages.
ACORN, or the Association of Community Organizations for Reform Now, held demonstrations outside of Countrywide offices last fall, complaining that its foreclosure prevention initiatives were inadequate.
The collaborative agreement announced today goes beyond Countrywide’s previous efforts, which were primarily targeted at borrowers with adjustable-rate mortgages (ARMs) who were still current on their loans and faced potential payment shock with an interest-rate reset.
The agreement calls for ACORN counselors and Countrywide loan servicers to use a “streamlined approach” to help delinquent subprime borrowers with fixed- or adjustable-rate mortgages stay in their homes, through short-term repayment plans or loan modifications including capitalization of arrearages, interest-rate freezes or rollbacks, and interest-rate reductions.
Borrowers are advised to call Countrywide’s Home Retention Division directly at 800-669-6650, or the ACORN Housing call center at 866-672-2676.
The agreement fills gaps in Countrywide’s previously announced foreclosure prevention initiatives by providing assistance to borrowers who fell outside of their scope, said ACORN president Maude Hurd in a statement. Hurd said she hoped other mortgage servicers would adopt similar practices.
Saying Countrywide was not doing enough to prevent foreclosures, ACORN last fall organized protests at the lender’s offices in major U.S. cities. At the time, Hurd said Countrywide was offering “unaffordable payment plans and short-term modifications that will do nothing but force homeowners to limp along, hoping for a quick recovery in the housing market.”
The new agreement calls for Countrywide to take a “systematic approach” to helping subprime ARM borrowers who face interest-rate resets by freezing their rates for five years or helping them refinance into a prime loan.
Michael Gross, managing director of loan administration for Countrywide, said in a statement that the new initiative offers investors in securities backed by the loans “a more attractive alternative than foreclosure.”
Countrywide is a founding member of the HOPE NOW coalition of lenders and loan servicers who have agreed to streamline the process of loan modifications. A survey of some of the group’s members found they were able to initiate repayment plans or modify the loan terms of two out of three delinquent subprime borrowers in the second half of 2007 (see Inman News story).
But state bank regulators who have formed their own foreclosure prevention group recently released another survey that suggests loan servicers were helping a much smaller percentage of troubled borrowers.
That survey, of 13 of the top 20 subprime loan servicers, concluded that seven in 10 seriously delinquent borrowers were not on track for any loss mitigation in October. Furthermore, 73 percent of successful loss mitigation efforts closed during the month involved borrowers bringing their account current.
“This demonstrates that it is mostly the homeowners themselves that are resolving their financial difficulties,” the survey, published by the State Foreclosure Prevention Working Group, concluded. “We are concerned this reliance on homeowners to solve most of these loan problems is not sustainable at its current level.”
Of the 205,270 successful loss mitigations tracked by the working group’s survey in October, only 4 percent involved a delinquent borrower refinancing. About 10 percent involved lenders drawing up a repayment plan, and 9.3 percent were the result of loan modifications.
The option of refinancing had “nearly evaporated” for borrowers, and while servicers were increasing their use of loan modifications and other long-term solutions, the survey found “a large gap between the number of homeowners needing loss mitigation and the number currently receiving assistance.”
Although more than 150,000 delinquent loans were in the process of receiving a loan modification or another long-term accommodation to prevent foreclosure at the end of October, the survey suggested that loss mitigation efforts were being attempted on only 24 percent of seriously delinquent subprime loans.
For its part, Countrywide says it completed more than 81,000 workouts in 2007, and is working with more than 100,000 other borrowers on alternatives to foreclosure — although that’s only a fraction of borrowers who are already — or may soon become — delinquent. Of the 9.03 million loans Countrywide was servicing at the end of the 2007, nearly 630,000 were delinquent and about 94,000 were pending foreclosure.
Although most of the loans Countrywide made during the housing boom were not to subprime borrowers, those loans are defaulting at a much higher rate than prime loans. Last month, Countrywide said that about one in three subprime loans in its $1.5 trillion servicing portfolio were delinquent by 30 days or more, compared with less than one in 10 for the portfolio as a whole.
Countrywide lost $704 million in 2007, with a $1.2 billion third-quarter and $422 million fourth-quarter loss more than wiping out profits made in the first half of the year. After the seizure of secondary mortgage markets in August, the Calabasas, Calif.-based lender was forced to scale back its loan originations and concentrate on mortgages eligible for purchase by government-chartered loan financiers Fannie Mae and Freddie Mac.
Bank of America, which provided Countrywide with $2 billion in emergency funding in August, announced in January that it would buy the lender in an all-stock transaction valued at more than $4 billion.
Countrywide had previously announced it was nearing an agreement with ACORN in December on a foreclosure prevention initiative (see Inman News story).