A new report by a group of state Attorney’s General and bank superintendents says efforts to stop the national home foreclosure crisis need to be modified to prevent a deluge of foreclosures. Iowa Attorney General Tom Miller is part of the group and says the initial effort helped slow foreclosures, but it hasn’t eliminated the problem.
Miller says there’s a backlog as loan servicers have taken too long to modify loans and there’s the potential for potential foreclosures that have built up in the system. “The efforts really need to be more efficient, more effective and more timely on behalf of the servicers,” Miller says.
Miller says the first round of modifications involved putting off loan payments until later. He says those weren’t real modifications, and the second round involved cutting interest rates which helped reduce the payments to give the potential for the modifications to work.
Miller says they now want servicers to modify the principal amounts of the loans, particularly where the homes are under water or significantly underwater. A home is under water when the homeowner owes more on the home than what the home is worth.
Miller says cutting the principal on loans worked during the 1980’s farm crisis. Miller says principal reduction was a key element in saving rural Iowa in the 80’s and is important to servicers to prevent foreclosure of loans. Miller says it costs the lenders more to foreclose on the loans that it does to modify the loans.
The report by what is called the State Working Group says one in seven borrowers nationwide are behind on their mortgage and about 25% owe more than their house is worth. Some have questioned whether the loan modification program has worked, but Miller says they are wrong.
Miller says the program is clearly a positive, and he says to have not done it would have been “a huge mistake.” You can see the reports from the group at: www.csbs.org.
Miller says any Iowans facing foreclosure or difficulty making their payments should call the Iowa Mortgage Help Hotline at 877-622-4866.