Loan Mods....70% & 58% re-default rates!

I just finished reading a recent story by Diana Golobay titled ‘Principal Reduction More Effective Than Load Mods to Avoid Default: Deutsche' (http://www.housingwire.com/2010/06/10/principal-reduction-more-effective-than-load-mods-to-avoid-default-deutsche).  The article states the success of a principal reduction loan mod has a lower default rate compared to the more commonly issued rate and term loan mod.  A rate and term loan mod is where the servicer/investor either lowers the interest rate and/or extends the term of the loan.  For example, if you're currently paying a mortgage with an interest rate of 7% on a 30-year fixed mortgage, the servicer/investor may offer you a new loan (usually for a period of three to five years) with an interest rate of 5% and have it amortized over 40 years rather than 30 years.  This should make the loan more affordable for you. 

I have a few concerns with loan modifications and don't really buy into them.  You can watch my videos on this topic at http://www.theshortsaleminute.com  I'm not going to go into detail on my position with loan mods here, but I do want to express my concern with the article I read above.  This graph was provided:

Is it just me or is it alarming that just 19 months after a homeowner receives a loan modification (either rate & term or principal reduction) they hit their peak with defaults?  Rate & term loan mods have a default rate of over 70% and principal reduction loan mods peak at about 58%!  Really?  What's more troublesome is after 36 months or 3 years we're still looking at default rates of 65% and 39%!  Is this really solving the problem?  In my opinion loan mods are delaying the inevitable.  A good majority of homeowners will re-default and be back in the same situation prior to the loan mod or worse.  This is similar to putting a band-aid on a six inch gash to your jugular.  People need to realize they are bleeding out.  I believe emotion takes root and people are not thinking about their long-term well being and the effects of their decisions.  I can honestly say, I feel more people would benefit from a short sale compared to a loan modification. 

I will talk more in upcoming posts about my position on loan mods and the proof that supports my opinion.

This is Ryan Smith signing off, until next time!

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