'Workouts' on U.S. prime mortgages rise - Hope Now

NEW YORK (Reuters) - New payment plans on mortgages to the most credit-worthy homeowners jumped nearly 20 percent in the first quarter of 2008, while "workouts" for subprime borrowers leveled off, an industry alliance said on Monday.

Changes to repayment schedules or contractual terms of loans to prime borrowers helped push total mortgage workouts to 502,520 in the first quarter.

That marked a 6 percent increase over the fourth quarter and a 26 percent leap from the third quarter of last year, according to Hope Now, the alliance of mortgage servicing and counseling companies formed in October.

Mortgage companies negotiated new terms on 206,495 prime loans last quarter, Hope Now said, a 19 percent gain from the fourth quarter's 173,499.

That increase may be a result of prices falling much more quickly on more expensive homes, often financed with jumbo loans to prime borrowers, said Michael Youngblood, a managing director with Friedman Billings Ramsey in Arlington, Virginia. The rising need of workouts for prime mortgages also reflects the U.S. economic slowdown, he said.

"We've moved past the period where borrowers were defaulting (only) as a function of poor underwriting," Youngblood said. "They are now due to more fundamental reasons such as job loss, or reduction in income."

The Standard & Poor's Case-Shiller Home Price Index, which includes jumbo loan-financed properties, has declined 10.6 percent through January. The house price index that follows loans eligible for financing offered by Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) fell 2.7 percent in the period.

Workouts on subprime loans, whose soaring defaults led to the U.S. foreclosure crisis and sparked the global credit crunch, totaled 296,025, off slightly from the 301,244 in the previous three-month period.

The Hope Now group, which includes big mortgage companies like Wells Fargo & Co (WFC.N: Quote, Profile, Research), was created under the guidance of the U.S. Treasury to share information and help curb the crisis in foreclosures. Member institutions have helped nearly 1.4 million homeowners since July, but the results have failed to stem expectations that foreclosures will continue to climb as house prices continue to fall.