By Alan Zibel, AP Business Writer

Trade Group Says Report Shows Reinforced Push to Avoid Foreclosures, Critics Question Analysis

A mortgage industry trade group insisted Thursday that lenders are doing a better job of helping troubled borrowers than outside reports say they are.

The Mortgage Bankers Association said in a new report that mortgage lenders modified 54,000 loans and established 183,000 repayment plans in the third quarter, a period in which there were 384,000 new foreclosures.

"The industry is doing a good job, and I think we're going to see these numbers grow," said Jay Brinkmann, vice president of research and economics for the trade group.

Consumer advocates who reviewed the report Thursday noted that only 13,000 loan modifications, or 24 percent of the total in the third quarter, were made for subprime borrowers with poor credit and adjustable-rate mortgages who have seen delinquencies and foreclosures soar over the past year.

Those modifications affected less than 1 percent of the 3 million subprime loans with adjustable rates that were outstanding in the third quarter.

The report also concluded that among subprime adjustable loans that went into foreclosure in the third quarter, 40 percent were from borrowers who were unable to keep up with modified loans or repayment plans. Consumer groups saw that as evidence that the industry isn't doing enough to help borrowers.

"The products that are being offered as repayment plans and loan modifications don't work," said John Taylor, chief executive of the National Community Reinvestment Coalition in Washington, whose group is calling for federal funding to bail consumers out of teetering loans.

Speaking Thursday at a mortgage conference in New York, the chair of the Federal Deposit Insurance Corp. urged industry executives to do a better job of modifying loans. "We must see a pickup in the pace, and the sooner the better," Sheila Bair said.

The Mortgage Bankers' report, the first such analysis by the association, came from a survey of companies that collect payments for more than 60 percent of outstanding U.S. home loans.

The mortgage industry was criticized by consumer groups, lawmakers and regulators last fall after a survey by Moody's Investors Service in August showed lenders had modified only 1 percent of subprime loans to people with poor credit records. A follow-up survey by Moody's found in September that 3.5 percent of subprime loans that reset to higher levels in the first eight months of 2007 had been modified.

The new analysis, however, argued that Moody's study incorrectly compared the number of borrowers receiving help to the total number of outstanding subprime loans, many of which are refinanced before they reset at higher rates. A better way to examine the issue, the group said, is to compare the total number of loan modifications to the total number of foreclosures in the quarter.

Consumer advocates said the Mortgage Bankers Association's study overhyped industry-led efforts and pointed to the Moody's analysis as a more realistic picture.

"It's rare that those loans are going to be able to be repaid as they are currently structured," said Ellen Schloemer, research director at the Center for Responsible Lending in Durham N.C.

The trade group's report used its own estimate for foreclosures, which is lower than that of RealtyTrac Inc., which reported more than 635,000 filings in the third quarter.

The Mortgage Bankers Association says its results are more accurate than those of Irvine, Calif.-based RealtyTrac, which includes default notices, auction sale notices and bank repossessions in its reporting and can include two notices on the same property if the owner has multiple mortgages.

Today's report, the trade group says, underscores how hard banks are working to assist strapped borrowers with loan modifications and repayment plans. Making matters difficult, the group said, is a high proportion of homes owned by speculators and situations in which borrowers didn't respond to repeated attempts to contact them.

Among the foreclosures, 63 percent involved cases in which borrowers had already defaulted on a previous loan workout plan, didn't respond to efforts to contact them or didn't live in the home, the survey found.

On Wednesday, Countrywide Financial Corp. -- the nation's largest mortgage lender -- said it helped more than 81,000 borrowers keep mortgage payments manageable last year, part of a stepped-up campaign to stem growing defaults and foreclosures.

The Calabasas, Calif.-based company, which was servicing more than 9 million loans as of Dec. 31, said it worked with 81,266 borrowers to modify loan terms, work out long-term repayment plans or take other actions.

Foreclosure prevention is a top priority for policy makers, as 1.8 million subprime mortgages made to borrowers with poor credit are scheduled to reset to higher rates this year and next.

Last month, the Bush administration brokered an agreement with the mortgage industry to freeze rates on certain subprime mortgages for five years to help homeowners at risk of losing their homes when lower introductory rates reset to sharply higher levels. Treasury Secretary Henry Paulson said last week the administration was exploring a significant expansion of the program to help at-risk homeowners.