September 18, 2008
The House Financial Services Committee is holding hearings this week
into mortgage lenders' efforts to help struggling homeowners avoid
default. The testimony from one state official was less than
encouraging.
"Based upon our experiences in Massachusetts, lenders, holders and servicers have not lived up to their very public promises of avoiding foreclosures by achieving loan modifications," said Massachusetts Attorney General Coakley, who testified today. "We have been very active at the state level in urging the mortgage industry to take meaningful action to decrease the number of foreclosures, but we need Congress' continued help in effectuating real change."
Today, Massachusetts Attorney General Martha Coakley submitted testimony to the U.S. House Financial Services Committee regarding her office's findings and observations with regard to the lack of progress in securing mortgage loan modifications for homeowners who are struggling to make payments and facing foreclosure.
The Committee, chaired by Rep. Barney Frank (D-MA), is holding a hearing regarding the implementation of new federal foreclosure mitigation legislation. Coakley was invited to testify regarding her office's role in investigating the practices of brokers selling auction rate securities to municipalities and other state entities.
She told the committee that loan modifications are not being achieved in significant numbers. When compared to the number of foreclosures in process, she said far too few borrowers are able to restructure their loans to generate a sustainable loan.
When so-called loan modifications do occur, she said they often do not result in a sustainable loan. Lenders and servicers routinely offer and complete so-called loan modifications that increase monthly payments and increase overall debt, she found. They do not meaningfully avoid foreclosure. At best, they temporarily delay the inevitable delinquency and eventual foreclosure.
In recent months, Coakley says her office has reviewed 144 loan modification documents, reflecting all loan modifications filed in 14 counties.
The office found that not one of the 144 loan modifications reduced the principal mortgage balance of Massachusetts, and virtually none of the 144 loan modifications reduced the monthly payments for Massachusetts homeowners, so the distressed loans are no more affordable after "modification" than before.
