Housing Action Illinois has published a report analyzing the frequency of loan modifications made by loan servicers for homeowners facing foreclosure in Illinois. The study aims to determine whether current efforts to assist homeowners to avoid foreclosure are working, and to identify existing barriers to loan modifications. In addition, the study examines renters in foreclosure and identifies recommendations for this specific population.
The study concludes that additional measures are necessary to aid homeowners facing foreclosure. The number of families at risk of foreclosure is expected to increase steadily, and existing voluntary efforts by servicers to develop workout plans have not significantly reduced foreclosures. Recommendations include requirements that servicers modify loans, and the passage of federal legislation allowing bankruptcy judges to modify loan terms on primary residences.
The report also emphasizes the need to provide resources for renters impacted by foreclosures. At least 39% of foreclosure-counseling recipients in the study had renters living in their properties. The study specifically recommends changes in federal policy to require entities taking over foreclosed properties to honor tenant leases and provide at least 90 days notice before terminating tenancy.
Since 2006, housing counselors in Ilinois have seen a steep rise in the number of foreclosure clients. The study details the most common types of workout plans loan servicers offer homeowners facing foreclosure, such as repayment plans, temporary suspension of payments, lowered interest rates, and a lengthened loan term. The prevalence of repayment plans does not help homeowners at risk of foreclosure, the report finds, because there is no substantial change in loan terms. Furthermore, many counseling recipients need principal writedowns to offset over-appraised home values, and this option is rarely offered.
The study surveyed housing counselors to evaluate 38 loan servicing companies, which were generally found to be unwilling to alter original lending terms. The study finds that nearly three-quarters of the servicers rarely agreed to workout plans, and that only 11 servicers agreed to workout plans at least 50% of the time
The report, Analyzing the Frequency of Loan Servicer Modifications for Homeowner’s Facing Foreclosure can be found here: http://www.housingactionil.org/news-alerts/index.html.