Loan Modifications Will Only Exacerbate Housing Troubles

By
Mortgage and Lending with Canopy Mortgage, LLC NMLS 124492

Loan Modification Results With High Re-Default RateAs is the norm, speculation and trigger words often get the headlines in the media outlets. Unless you have been in a bomb shelter, it has been unavoidable to hear all of the debate around a successful loan modification program and/or system to help troubled homeowners.

It has been such an important topic that the president-elect has already made public appearances and proclaimed of its importance in the new administration. Not only is it good for America's economy, but also the consumer psychology.

The main reason is due to the fact that homeownership had become the back bone of consumer spending of the last decade.

In a press release made today by the Office of the Comptroller of the Currency (OCC), John C Dugan disclosed that there was a high re-default rate amongst homeowners who had their loans modified in the 1st quarter of 2008. Re-defaults are classified as loans with payments in excess of 30 days delinquency. Here are the facts about the re-defaults:

  • 36% Re-Default after 3 months
  • 53% Re-Default after 6 months
  • 58% Re-Default after 8 months

Unlike other reports, the OCC and Office of Thrift Supervision Mortgage Metrics Report  encompasses 60% of all first-lien mortgages in this country. This represents roughly 35 million loans worth in excess of $6.1 trillion.

Previewing the results for the 2nd quarter are even more frightening. Here are the preliminary results recorded thus far:

  • 22% Re-Default after 1 month
  • 30% Re-Default after 2 months
  • 39% Re-Default after 3 months
  • 44% Re-Default after 4 months
  • 51% Re-Default after 5 months

These kind of numbers definitely give investors a substantial argument against streamlined loan modifications. Furthermore, it definitely makes you wonder 1) how effective are loan modifications, 2) are we simply creating another housing implosion for the future and 3) do these homeowners really deserve a 2nd / 3rd chance at homeownership.

 

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Rainmaker
1,035,932
June Piper-Brandon
Long & Foster Hampden - Baltimore, MD
Piecing Dreams One Home at a Time

And, often the headlines don't have anything at all to do with the contents of the article, so for people who scour the headlines and rarely read the article this is a bad thing.

Dec 08, 2008 01:50 PM #1
Ambassador
891,430
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

I think in so many cases, people were buying more than they could hope to afford.  Changing a few terms by a little bit isn't going to cut it. 

Dec 08, 2008 02:02 PM #2
Rainer
70,970
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

June,

These statistics hardly made the headlines today. The press release was just a news blip and before you knew it, you had to digg deep to find the story. With the changing of the guard, this can only hurt their case for streamlined loan modifications either through Fannie Mae, Freddie Mac, Federal Housing Finance Agency, FDIC or any other entity. Furthermore, this definitely puts a hamper on Obama's proclamation for judicial loan modifications.

Dec 08, 2008 02:26 PM #3
Rainer
70,970
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

Lane,

The number one reason for default is actually a change in income, not the terms of the original loan (i.e. ARMs, balloons, etc...). Therefore, addressing terms and not the source of the issue is another government deficiency.

Dec 08, 2008 02:28 PM #4
Ambassador
891,430
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

James, I have run across too many people that couldn't affird the house when they bought it... but they were counting on a change of income that didn't happen.  They assumed that they would be able to afford the house when it actually came time to pay for it. 

Dec 09, 2008 01:05 PM #5
Rainer
9,414
Nicholas Napoletano
Nicholas Napoletano - Red Bank, NJ

Great Info James, I've been approached over and over again from different loan modification companies trying to sell me on the benefit of these programs. For the most part I do not come across many clients that need this, but I thought it might be another available option for them. Your blog makes me feel that I did the right thing.

NN

Dec 11, 2008 01:36 AM #6
Rainer
70,970
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

Lane,

I hear you. I know many transactional loan officers that actually guided borrowers down that road of qualifying home purchase on projected income. Looking the rear view mirror that approach was obviously a mistake especially in light of the impact of the recession.

Dec 11, 2008 04:17 AM #7
Rainer
70,970
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

Nicholas,

I always profess that you need to be lazer focused on your own profession. We cannot be a jack of all trades and a master of none. Many have said that is how we got into this mess to begin with.

I am glad that you found comfort with the content of my blog. Please visit and subscribe to my blog at http://myCMPS.wordpress.com.

Dec 11, 2008 04:21 AM #8
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James K Barath, CMPS

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