Mortgage loan "workouts" exceed 1 million: Hope Now

By Al Yoon

NEW YORK (Reuters) - Mortgage companies have given more than 1 million homeowners facing possible foreclosure new payment plans or other "workouts" since July, an industry alliance said on Monday.

A study by the Hope Now alliance of mortgage lenders, servicing companies and counselors said a study found about 1,035,000 homeowners have received workouts. The number is more than three times that of foreclosure sales, the group said in a conference call.

The alliance, formed in October under guidance from the U.S. Treasury, has come under increased pressure to ease the housing crisis that government officials have said is partly of the industry's own making. The group last month expanded its efforts with guidelines for 30-day breaks in foreclosure proceedings for seriously delinquent borrowers to give lenders more time to modify loan terms.

Of the workouts since July, 278,000 were loan modifications that mortgage companies say are more difficult because they involve breaking a contract between borrower and investor.

Loan modifications, which can include freezing interest rates on an adjustable-rate loan, made up almost 50 percent of subprime loan workouts in January, up from 35 percent in the fourth quarter and 19 percent in the third quarter, Hope Now said.

In January, mortgage companies began implementing a program introduced in December by the mortgage industry and U.S. Treasury Secretary Henry Paulson to freeze interest rates for some subprime borrowers for five years, the alliance said.

Wall Street analysts have held out limited hope that Paulson's "fast-track" modification plan will have a big impact, insisting that the bulk of delinquencies has been due to falling home prices, not rising interest rates.

During the housing boom, many borrowers took out loans with expectations they would be able to refinance their mortgage and extract home equity. But with prices now falling, about a fifth of subprime loans originated in 2006 are greater than the value of the home, according to Lehman Brothers research.

The Hope Now data was provided by 18 mortgage servicing companies covering almost two-thirds of the industry, it said.

(Reporting by Al Yoon; Editing by Jan Paschal)