Financial Update (Second Quarter 2007)

Regulators: Work With Delinquent Mortgage Borrowers

picture of a man carrying a heavy houseThe Federal Reserve and other financial regulatory agencies are encouraging lenders to work with homeowners who are having trouble paying their mortgage. Institutions will not face regulatory penalties if they pursue reasonable workout arrangements with borrowers, the agencies said in an April news release.

Working out problems benefits all parties, agencies say
Prudent workout arrangements consistent with sound lending practices are generally in the long-term interest of the financial institution and the borrower, according to the agencies, which, in addition to the Fed, include the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.

Workout arrangements include modifying loan terms and moving borrowers from variable-rate loans to fixed-rate loans, the agencies said. Programs that shift low- or moderate-income homeowners from higher-cost to lower-cost loans might receive favorable consideration under the Community Reinvestment Act, provided the loans are made in a safe and sound manner.

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The regulators urge borrowers who are unable to make their mortgage payments to promptly contact their lender or servicer to discuss available options.

Falling behind need not trigger quick foreclosure
The agencies also reiterated that regulatory guidance and accounting standards do not require immediate foreclosure on homes when borrowers fall behind on payments. In addition, the Homeownership Counseling Act requires institutions to inform delinquent borrowers about the availability of homeownership counseling. The regulatory agencies also noted that lenders should consider working with reputable consumer-based organizations to help strapped borrowers avoid foreclosure rescue scams.

May 9, 2007