Sub-prime study faults servicers

Loan service companies did little to help sub-prime borrowers with adjustable-rate mortgages stay in their homes, even as it became clear many homeowners were struggling to keep up with their payments, a study released Friday showed.

Moody’s Investors Service said banks eased borrowing terms on just 1% of sub-prime mortgages with interest rates that reset higher in January, April and July.

“Only recently” have mortgage servicers begun to modify more loans to help homeowners avoid foreclosures, “despite much industry dialogue and heavy press attention” on the problem, Moody’s said.

The credit-rating firm based its study on 16 servicers that handle $950 billion in sub-prime mortgages, it said.

Servicers are responsible for collecting loan payments and paying such things as insurance and property taxes. Sub-prime mortgages go to people with weaker credit.

Moody’s said that although some servicers were actively reaching out to borrowers through phone calls, a majority still relied on letter writing, a more passive communication method.

The credit-rating agency did not name the servicers it had evaluated, but said its study covered 80% of the sub-prime servicing market.