Pace of mortgage aid by industry dropped in May

Hope Now, a group backed by the Bush administration to help stem the mortgage crisis, said Wednesday that about 169,000 borrowers received some form of loan workout in May, down from 177,000 a month earlier. The group said it is on pace to assist about 520,000 borrowers in the second quarter, the highest number in any quarter since the effort started last year.

Foreclosures, meanwhile, have continued to escalate. According to Hope Now's data, sales of foreclosed properties were running at nearly 82,000 per month in April and May, up from a pace of about 66,000 per month in the January-March period.

Nearly 3 million U.S. homeowners are likely to default on their mortgages this year and about half will lose their homes, said Mark Zandi, chief economist with Moody's Economy.com. Hope Now is "helpful, but it's getting overwhelmed by the magnitude of the problem," he said.

Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from the same month last year and up 7 percent from April, according to foreclosure listing service RealtyTrac Inc.

Federal lawmakers call the industry's efforts inadequate and are pushing for a new $300 billion program to allow the government to back new loans for struggling homeowners. Supporters are hopeful the measure could clear Congress this month.

Consumer advocates say permanent home loan modifications, in which a mortgage company agrees to reduce the interest rate or make other changes, are the best way to help borrowers. The mortgage industry's statistics include repayment plans, which allow borrowers to get back on track after missing payments.

Housing advocates nationwide have been frustrated with the industry's efforts, as mortgage companies remain reluctant to make dramatic changes to loan terms, said Alys Cohen, a staff attorney at the National Consumer Law Center in Washington.

"They're not providing affordable (workout) plans," she said.

Meanwhile, a California advocacy group that surveyed 42 housing counseling agencies found foreclosure is still "a very common outcome" for about two-thirds of respondents. Mortgage companies generally are reluctant to modify loans so they will be affordable in the long-term and are not reducing the total principal amount owed, the California Reinvestment Coalition said Wednesday.