Subprime borrowers aren't getting the help they need

Subprime borrowers with adjustable-rate mortgages aren't getting the help they need from banks to make their payments more affordable, according to Moody's Investors Service.

One percent of U.S. subprime mortgages with interest rates that began to adjust in January, April and July were modified to help homeowners avoid default, the New York-based debt-rating firm said in a statement today.

A majority of companies collecting payments on subprime loans "continue to rely on passive letter-based contact with borrowers instead of more active methods such as phone calls," Moody's said. Moody's surveyed 16 servicers that managed $950 billion of subprime mortgages, or roughly 80 percent of the market.

"These trends can be a cause for some concern," Nicolas Weill, Moody's chief credit officer for structured finance, said in the statement. "The number of future loan modifications by subprime servicers on loans facing reset may be lower than needed to mitigate losses meaningfully."

Bond investors, consumer advocates and regulators including the Federal Reserve have encouraged lenders to help subprime borrowers through refinancing or an easing of loan terms to stem rising foreclosures. The total U.S. foreclosure rate and the default rate for subprime mortgages in bonds are at the highest on record.

Subprime mortgages are made to people with poor or limited credit histories or high debt burdens. More than 80 percent of such loans made in 2005 and 2006 had adjustable interest rates, up from 52 percent in 1999, according to Credit Suisse Group. Rates of typical subprime mortgages rise 3 percentage points after an initial two-year period.