Mortgage relief rises amid housing crisis

NEW YORK (CNNMoney.com) -- Many more troubled home borrowers are getting help than had been previously estimated, according to a report released Thursday, though some still question whether current aid is sufficient.

According to a report released Thursday by the Mortgage Bankers Association, the mortgage industry initiated more than 54,000 loan modifications in the third quarter of 2007, approximately 13,000 of which were on subprime loans. Because it was the first such analysis, the MBA could not say if this is an increase or decrease from previous quarters.

The MBA said that "modification" includes interest-rate adjustments or changes in the length of the loan. The term also includes writedowns of loans, which are reductions in the total amount that a borrower has to pay.

"In our report, we wanted to see what borrowers were truly at risk," said Jay Brinkmann, MBA's Vice President of Research. Brinkmann said that "at risk" borrowers include those who have been previously delinquent on payments, have entered repayment or loan modification plans, or who have started the process of foreclosure.

The MBA said that in addition to the 54,000 loans that were modified in the third quarter, 183,00 borrowers established repayment plans to adjust the dollar amount in monthly payments.

In addition, 384,000 borrowers began the process of foreclosure in the same time period.

These numbers were larger than most had expected. A September survey by Moody's Corp. (MCO) found that most subprime-loan servicers this year had modified only about 1 percent of their adjustable-rate mortgages (ARMs) that had reset to higher rates by the end of July.

Though MBA's study did not include a percentage, they concluded that many more borrowers were being helped by mortgage lenders. "Moody's percentage is clearly incorrect" said Brinkmann. "Our numbers are not perfect, but they are more realistic."

Since the beginning of the housing slump, foreclosures have been on the rise as borrowers with ARMs became increasingly unable to afford their monthly payments. ARMs typically begin with a low interest rate but then increase along the course of a mortgage. To try to keep borrowers in their homes and paying their mortgages, lenders began to modify loans to something that the homeowner can afford.

But some people said not that the mortgage lenders are not going far enough.

John Taylor, President and CEO of National Community Reinvestment Coalition, said that the report was both good and bad news for borrowers. "The good news is that initiatives are being attempted. The bad news is that both Moody's and MBA's statistics show they're not working," Taylor told CNNMoney.com

Taylor said that despite mortgage lenders' attempts at restructuring borrowers' loans, the housing crisis continues because of the government's "unwillingness" to help.

"Lenders are trying to fix a broken engine with Tonka toys," said Taylor. "The Federal government needs to expand its capabilities and resources so that loans can be refinanced according to what borrowers need to pay."

Taylor believes that the end of the housing crisis will come when the government can restore liquidity in the market. "As property values are continuing to decline," said Taylor, "writedowns are in everyone's best interest. We all have a dog in this hunt. Writedowns will create affordable mortgages so that people can stay in their homes. Vacant properties would diminish, and home prices will stop declining."