Mixed reports on lenders' willingness to help troubled borrowers

As critics leveled new charges Wednesday that banks won't help most borrowers avoid foreclosure, the Schwarzenegger administration released a survey saying lenders are rewriting more of their troubled loans.

A new California Department of Corporations tally showed loan modifications – in which lenders froze or lowered interest rates – hit 8,686 in May, down from 9,448 in April. Still, the May figure was 49.4 percent higher than January's modifications.

The number of overall loan deals made with borrowers also rose from levels earlier this year. Lenders reported 21,359 loan workouts in May and 20,567 in April. That compared with about 16,000 workouts in January.

The deals included everything from short sales, in which the lender accepts less than owed, to forebearances, in which the lender temporarily suspends monthly payments.

The largest number of modifications allowed the borrower to keep the original starter interest rate or get a lower one.

Administration officials, who have acknowledged a slow start to their November agreement with subprime lenders to help more people avoid foreclosure, said they were encouraged by the improved results.

"This is a rather dramatic increase," said Department of Corporations spokesman Mark Leyes. "It's good news."

The administration also announced a $1.2 million statewide "90 Days of Hope" ad campaign with a message for struggling borrowers: Call your lender for help. In the ads, which began appearing statewide this week on billboards and buses and in newspapers, borrowers who received help urge others to keep trying.

"If this helps one of 20 families call a (foreclosure) hot line and qualify for help … I think it's a success," said Amanda Fulkerson, spokeswoman for the State and Consumer Services Agency, which oversees the ad campaign.

Meanwhile, the state Senate weighed in Wednesday, voting 32-8 to send Schwarzenegger a bill requiring lenders to contact homeowners in person or by phone to seek solutions before starting foreclosure proceedings.

Senate Bill 1137 also gives tenants 60 days to move after a property is foreclosed. It requires those who buy a foreclosed property to keep it maintained or face $1,000-a-day fines. The changes will take effect as soon as the governor signs the bill.

These initiatives are playing out amid a continuing sharp rise in foreclosures. California has recorded nearly 117,000 home foreclosures in the first half of 2008, according to Foreclosures.com, a Fair Oaks Web site for real estate investors. That's up from 94,969 all last year, the site reported.

It reported almost 13,000 foreclosures during the first half of 2008 in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, up from 11,300 foreclosures last year.

Experts say more than half of people with mortgage trouble never call their lender for help. But according to the California Reinvestment Coalition, making the call often yields no help at all.

In a survey released Wednesday of nonprofit loan counseling groups and legal hot lines, the coalition said lenders are blocking requests for help and resisting appeals to lower the amount owed.

"It's still the case that foreclosures outnumber loan modifications," said Kevin Stein, associate director of the coalition.

Stern called the new statistics showing an increase in modification "positive," but he said the scale of the foreclosure problem is overwhelming lenders' ability to work with borrowers.

In a statement, the California Mortgage Bankers Association complained that an "unprecedented and voluntary response by the lending community to deal with an unprecedented challenge continues to receive little to no acknowledgment" by the California Reinvestment Coalition.

About the writer:

• Call The Bee's Jim Wasserman, (916) 321-1102. Read his Home Front blog at www.sacbee.com/blogs. Bee Capitol Bureau Chief Dan Smith contributed to this report.