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STUDY FINDS GOVERNMENT'S FORECLOSURE MITIGATION EFFORTS NEED IMPROVEMENT Outreach programs designed to help struggling borrowers just aren't doing enough to mitigate foreclosure, the U.S. Government Accountability Office (GAO) said in a report released in late June. With high foreclosure rates still presenting a major hurdle to housing and economic recovery, GAO conducted a study to evaluate and find opportunities to enhance foreclosure mitigation efforts. The report asserts that government agencies participating in foreclosure mitigation programs need to improve their existing strategies to help borrowers. The report specifically addressed loans modified by the Treasury (through the Home Affordable Modification Program, or HAMP), the United States Department of Agriculture (USDA), the Federal Housing Administration (FHA), and the GSEs. Although nearly 2 million loans have been modified by these agencies, the number of loans in foreclosure remains elevated and signs still suggest a weak housing market. GAO's analysis of mortgage data showed that in June 2011, between 1.9 million and 3 million loans still had "characteristics associated with an increased likelihood of foreclosure, such as serious delinquency and significant negative equity (a loan-to-value ratio of 125 percent or greater)." These loans were concentrated in certain states, such as Nevada and Florida, the report noted. "Further, more recent indicators such as strong home prices and home equity remain near their post-bubble lows," according to GAO. "As of December 2011, total household mortgage debt was $3.7 trillion greater than households' equity in their homes—representing a significant decline in household wealth nationwide," the agency said in its report. GAO also underscored the fact that a large number of borrowers who sought assistance were unable to receive a modification. Approximately 2.8 million 38 borrowers had their HAMP application denied or their trial loan modification canceled, and the volume of federal modifications has declined since 2010. Although recent efforts have expanded refinancing programs, low participation rates in FHA's program "raise questions about the need for Treasury's financial support," which could go up to $117 million, the agency said. GAO recommends funding for the underused program be reevaluated. While most agencies and enterprises (excepting the USDA) have stepped up efforts to monitor servicers' outreach to struggling borrowers, not all of them are conducting analyses to evaluate the effectiveness of their foreclosure mitigation efforts, according to GAO. The agency suggests better data collection and analysis on various factors—such as the size of payment change, delinquency status, and current loan-tovalue ratio—could influence the success of foreclosure mitigation actions. These changes could also cut program costs, the report said. The study also suggested that principal forgiveness could help some homeowners stay in their homes, particularly owners with significant negative equity. However, the agencies and enterprises are not using it consistently, and some are not convinced of the merits of principal reduction for preventing foreclosure. While GAO supplied specific suggestions for various agencies and enterprises to improve their foreclosure mitigation activities, the report largely called for better analysis of loan data to find the most effective solutions. "Until agencies and the enterprises analyze data that will help them choose the most effective tools and fully utilize those that have proved effective, foreclosure mitigation programs cannot provide the optimal assistance to struggling homeowners or help curtail the costs of the foreclosure crisis to taxpayers," GAO said. THE LEADER IN DEFAULT SERVICING NEWS Help shape the next issue of DS News. Drop us a line at Editor@DSNews.com.

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