NEW YORK – The recent actions of the Hope Now mortgage lenders’ alliance have “provided some short-term relief to roughly 1 million borrowers by providing a rate modification or an alternative repayment plan,” Fitch Ratings said.
The alliance has instituted both a streamlined loan-modification initiative and a 30-day voluntary moratorium on home foreclosures, at the request of federal regulators, as part of the public-private effort to stem the rising tide of foreclosures nationwide.
Concerned about long-term implications, Fitch analysts examined the Hope Now strategy. They found that, although “a streamlined modification yields the smallest amount of lost interest relative to other strategies, reducing the teaser rate costs the trust only slightly more cash flow while making the payment more affordable for the borrower,” the ratings agency says in a new report, “Making Dollars and Sense of Loan Modifications.”
“While it is difficult to estimate the impact on long-term foreclosure rates at this early stage, without an adequate measure of borrower participation or a confident projection of recidivism rates, the loss arising from the modification should be less than foreclosing and liquidating the property,” Suzanne Mistretta, senior director at Fitch, said in a statement accompanying the report’s release.
“Given the current state of mortgage lending and housing markets, [such] modifications may prove critical to keeping the loan’s cash flowing,” she added, “particularly since Fitch’s loss-severity expectations is 58 percent for the 2006 and 64 percent for the 2007 subprime vintage collateral.”
Fitch is in the process of gathering updated loss-mitigation data as of the end of June and December; the agency will publish further findings once that information is compiled.
Fitch Ratings Ltd. is an international credit-rating agency with headquarters in New York City and London. Additional information – including Fitch ratings and the agency’s full report, “Making Dollars and Sense of Loan Modifications” – is available at www.fitchratings.com.
Information about the Hope Now Alliance of mortgage servicers, and its 30-day foreclosure moratorium, is available from The Financial Services Roundtable at www.fsround.org.
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