Housing rescue efforts slowed in August

Fewer troubled borrowers got help with their mortgages in August than in July, according to figures released Thursday.

Hope Now, the alliance of mortgage servicers, counselors, and investors assembled to combat foreclosures, said it helped 189,000 homeowners avert foreclosure in August, down 1.7% from the number of people helped in July.

"It's difficult to look at any one month and see a trend," said Faith Schwartz, executive director of Hope Now. "We're still outpacing the second quarter in total workouts."

The news comes as the government's plan to rescue the financial system returns to the House for a vote after it passed the Senate Wednesday night. The legislation would permit the Treasury to buy up $700 billion of bad assets - most of which are backed by mortgages - from banks in an effort to clean up their balance sheets so that they can resume lending.

But many experts and economists say that the U.S. credit crisis cannot be resolved until the housing market stabilizes, with foreclosures slowing and steep home price declines leveling off. But home prices are still declining; the Standard & Poor's/Case-Shiller 20-city housing index fell a record 16.3% in July from a year earlier.

"Hope Now is absolutely successful in that it is saving people from going into final foreclosure, and that won't change," said Schwartz. "But any further direction that helps homeowners offered by the government would be helpful," she added in reference to the bailout.

Different workouts
Hope Now said that nearly 79,000 at-risk mortgage borrowers had the terms of their loans permanently modified in August to make them more affordable, with lower interest rates, reduced principal or both.

Another 110,000 homeowners, about 58% of the total workouts, got repayment plans, which means that they'll have extra time to make up missed payments. That's down from the 112,000 who got repayment plans in July.

These workouts are generally considered to be less effective at helping homeowners because they don't reduce the borrowers' total monthly payments, and in fact often increase them.

But since the Hope Now program began, the organization has succeeded in increasing the proportion of loan modifications that make up the total number of loan workouts.

For instance, only 17% of total workouts were modifications in the third quarter of 2007, compared to 42% in the second quarter of 2008. The ratio has held steady at 42% in the past two months.

"We're trying to tackle the broader issue for people who have the desire and capability to stay in their homes," Schwartz said. "That's why we try to restructure their loans."

Hope Now says it has helped a total of 2.3 million homeowners since its program launched in July, 2007. The group also reported that foreclosure sales fell to 86,594 in August, down 5.9% from July.

But a different report from RealtyTrac, an online marketer of foreclosure properties, showed that the number of homes lost to foreclosure rose 18% to 91,000 in August.

Subprime loans
Hope Now also issued the results of a separate study on subprime loans, which most economists believe are at the root of the housing crisis.

The coalition said it helped modify 91,000, or 8.3%, of the 1.1 million subprime adjustable rate mortgages that are scheduled to reset between January and August 2008. More than three-quarters of the modifications were for five or more years.

About 13,200 of the loans scheduled to reset went into foreclosure, while another 449,000 of them were paid off in full when the borrower was able to refinance the loan or sell the house.