Transcripts

Help For Homeowners

PAUL KANGAS: There could be some help in the works tonight for homeowners who can't pay their mortgages due to rising interest rates. State and Federal regulators, including the Federal Reserve, today asked mortgage loan servicing companies to help those borrowers before homes are at risk. Darren Gersh reports.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The new regulatory guidance applies to mortgages that were first issued by banks and mortgage brokers and later sold off into financial markets. Repackaged into securities, the mortgages are owned by investors, but the payments are often collected and monitored by a bank. Some analysts say that makes it harder to work out a deal to keep a home out of foreclosure. But regulators like Michael Stevens say servicers often have the authority to act before a homeowner gets into serious financial trouble.

MICHAEL STEVENS, SR. VP, CONFERENCE OF STATE BANK SUPERVISORS: Servicers need to step up to this responsibility and they need to understand the flexibility that they have under those servicing agreements and they need to use those to work with borrowers.

GERSH: In a statement on loss mitigation strategies, bank regulators called on servicers to identify borrowers at risk of default as mortgage payments reset to a higher interest rate. The regulators urged servicers to contact borrowers to assess their ability to repay and where appropriate, use loan forgiveness or other loss mitigation strategies to avoid foreclosure. Regulators also cautioned in cases where a borrower's monthly debt payments are more than half of his or her income, a work-out is unlikely to succeed. But consumer advocate Eric Halperin says that standard is too conservative.

ERIC HALPERIN, DIRECTOR, CENTER FOR RESPONSIBLE LENDING: Whereas one might say you should stay away from those borrowers. What we would say is you need to make more substantial modifications to their loan package to bring it into an affordable range.

GERSH: The new guidelines are voluntary and industry analyst Guy Cecala says loan servicers have little incentive to help borrowers before they get into serious trouble.

GUY CECALA, PUBLISHER, INSIDE MORTGAGE FINANCE: History has shown that, in terms of modifying a loan for example, which is a common way of doing it -- extending the borrower's payments, somehow lowering their interest rate, trying to make it more affordable to stay in the home -- basically has a 50 percent failure rate.

GERSH: But Cecala says loan servicers might be more willing to cut a deal in another six months, when more borrowers are projected to fall behind on their payments, sending the cost of a foreclosure higher. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.