US mortgage companies boost changes to subprime loans

NEW YORK, July 30 (Reuters) - U.S. mortgage companies urged by regulators to curb home foreclosures increased the number of borrowers helped in the second quarter to more than half a million, an industry group said on Wednesday.

So-called "workouts," which include new repayment plans for homeowners or a new, less risky loan contract, increased to more than 522,000 last quarter from 482,996 in the first three months of 2008, according to Hope Now, an alliance of mortgage lenders, servicing companies and counselors formed last year.

Mortgage companies have come under increased scrutiny this year for slow responses to the crisis in foreclosures, which has fueled expectations for steeper drops in home prices and slow U.S. growth through 2009. Falling home prices increase foreclosures as they can lower the value of the property beneath that of the loan, hurting homeowners' ability to refinance costly mortgages.

For the first time, more than half of the workouts in June and the second quarter were contractual changes to subprime loans, Hope Now said. Such modifications are seen as more important in stopping foreclosures than negotiating new payment plans since they more directly deal with effects of the ailing housing market.

Loan modifications can include forgiving principal that has been eroded by falling home prices.

In response to the crisis, President George W. Bush on Wednesday signed into law a bill that establishes a $300 billion fund under the Federal Housing Administration that will allow for more refinancing of mortgages that are "underwater" due to home price drops. (Reporting by Al Yoon; Editing by Theodore d'Afflisio)