According to realtytrac.com, 300,000 homes went into foreclosure last month. Bloomberg reports that the U.S. delinquency rate rose to 9.4% and foreclosures rose to 1.37%. According to Moody’s Investor Service, 42 percent of outstanding 2006-vintage subprime loans are at least 60 days delinquent, in foreclosure, or held for sale. As we all know, the housing crisis and rising unemployment rates have served to make it difficult for many Americans to pay their mortgages on time, and the result is that many of the nation’s home owners are in dire straights. The problem is bad, and banks need to change the way they modify mortgages if they hope to provide adequate assistance. They are now concentrating on fixing disasters as they arise rather than preventing them in the first place.
With so many people in financial trouble, mortgage lenders like Bank of America, Wells Fargo, Wachovia, Chase, and Citigroup are finding themselves too understaffed to deal with these excessive defaults. Given that a bank only has so many resources to extend to their borrowers, the dilemma becomes who to work with first. Basically, the bank has to perform a kind of triage, like in a hospital, to determine which of their clients demands immediate attention, and which clients can wait. The lender faces different kinds of repayment problems. Specifically, they have people who cannot repay and who are defaulting right now, and people who have done everything in their power to repay (tapped into savings, changed their lifestyle, etc.) but who cannot sustain their payments any longer; they have not defaulted yet but soon they will. According to a survey by ProPublica, it seems that most major lenders have been focusing on borrowers who are most delinquent at the expense of borrowers that are current but will quickly become delinquent unless they get help.