Our nation's subprime mortgage meltdown is severe. Unfortunately, it's probably going to get worse before it gets better. Arizona ranks second behind Nevada for having the most subprime mortgage borrowers per capita, so we are squarely in the eye of the storm. One measure of the problem is the foreclosure rate in metro Phoenix, which hit a decade high in August. With interest rates resetting on many subprime hybrid ARM loans, even more foreclosures are predicted in the coming months.

That's why I, along with nine other Attorneys General or their representatives, met in Chicago recently with 10 major servicers of subprime mortgages, including industry leaders Countrywide, Wells Fargo and Household Finance. We were seeking ways to mitigate the foreclosure crisis and help more homeowners avoid default and foreclosure.

It is in the best interests of all concerned parties – borrowers, investors in mortgage-backed securities, servicers, communities and the nation's economy – to, whenever possible, avoid foreclosures by modifying loan terms to make them affordable for borrowers. All parties seemed to agree that “enlightened self-interest” will lead to better treatment for borrowers in trouble. We were encouraged by a more flexible attitude on the part of many servicers to making real loan modifications. Contractual terms in service agreements and even Trust Indentures to the contrary appear to be less of an obstacle than feared.

The servicers provided the AGs with an overview of various loss mitigation/home retention programs available and some of the changes they have recently implemented. The servicers noted a concern that many homeowners are reluctant to contact them, even when a foreclosure is imminent. About half of borrowers who go into foreclosure have never contacted their servicer to seek help. Governmental agencies or third-party non-profits, which troubled borrowers are more likely to trust, could provide valuable help in facilitating modification discussions.

But, part of the problem lies at the feet of the servicers. Many frustrated homeowners have complained that they tried to talk with their servicer, but have gotten either a runaround or an unresponsive reply. In many instances, only after repeated contacts, sometimes dozens of calls, has anyone been found who could modify loan terms. It appears that companies need to do a much better job of connecting troubled borrowers with people in their organizations who have the information and the authority to actually help.

I believe our meeting was a positive preliminary step to achieving some borrower relief. We will continue to work with the mortgage industry. There are plans to meet with another large group of servicers later this month.

In addition to this national effort, my Office is also a member of the Arizona Foreclosure Prevention Work Group. This coalition is comprised of state agencies, industry representatives and community organizations to address this crisis locally.

By working together with mortgage industry leaders, we will do all we can to mitigate this challenge to homeownership in Arizona.

Terry Goddard