Lenders did little to help subprime borrowers with adjustable-rate mortgages stay in their homes, even as it became clear many homeowners would struggle to keep up with their payments, a study released on Friday shows.
Moody's Investors Service said banks eased borrowing terms on just 1 percent of subprime mortgages with interest rates that reset higher in January, April and July.
It said that only recently have servicers begun to modify more loans to help homeowners avoid foreclosures, despite much industry dialogue and heavy press attention on the problem.
The credit rating agency said it based its study on 16 servicers that handle $950 billion of subprime mortgages.
Servicers are responsible for collecting loan payments and paying such things as insurance and property taxes. Subprime mortgages go to people with weaker credit.
Moody's said that while some servicers actively reach out through phone calls to borrowers who may face resets, a majority still relies on more passive letter-writing.
These trends can be a cause for some concern, said Nicholas Weill, Moody's chief credit officer in structured finance, in a statement. The number of future loan modifications by subprime servicers on loans facing reset may be lower than needed to mitigate losses meaningfully.
Moody's did not name the servicers it evaluated, but said its study covered 80 percent of the subprime servicing market. This suggests that many big servicers were included.
The largest subprime mortgage servicers as of June 30 were Countrywide Financial Corp, JPMorgan Chase & Co's Chase Home Finance Inc unit, and H&R Block Inc's Option One Mortgage Corp unit, according to National Mortgage News.
JPMorgan spokesman Tom Kelly said Chase Home Finance this year began notifying customers by mail and phone, two to five months in advance, when their mortgage rates would reset, and what their new rates and monthly payments might be.
We give notice to allow borrowers time to try to work out modifications, he said. One of the bigger problems we face is being unable to get borrowers to respond when we reach out.
Countrywide and H&R Block were not immediately available for comment.
Regulators and politicians have encouraged lenders to help borrowers facing prohibitive resets to stay in their homes.
Many investors have compounded the market stress by refusing to buy all but the safest home loans, leaving lenders unwilling to offer modified loans they fear they won't be able to sell.
The Mortgage Bankers Association, a trade group, this month said the pace of foreclosures rose in the April-to-June period to a third straight quarterly record.
Rates on typical adjustable-rate subprime mortgages rise three percentage points after short initial fixed periods, commonly two years. Many lenders, including Countrywide and Washington Mutual Inc, have stopped offering such loans.