Mortgage mods, failing miserably! I wrote a blurb about the re-default rate on modified mortgages a few weeks ago. Today there was a better and more detailed account of just how bad the track record is on these "modified" mortgages. It seems these people are like crack addicts. No matter how much help you give them they just keep falling back on their old habits. Here's a thought "let's just foreclose and sell the house to someone that can and will pay for it!"
"The results, I confess, were somewhat surprising, and not in a good way", John C. Dugan said.
Comptroller of the Currency John C. Dugan said today that new data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months.
“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today. (The data is similar for mortgages modified in the second quarter: the re-default rate after three months was 39 percent, and after six months, 51 percent.)
Mr. Dugan spoke during a panel discussion with OTS Director John Reich, Federal Reserve Board Vice Chairman Donald Kohn, FDIC Chairman Sheila Bair, and Federal Housing Finance Agency Director James Lockhart.
A key question, Mr. Dugan said, is why is the number of re-defaults so high? “Is it because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers? Is it because consumers replaced lower mortgage payments with increased credit card debt? Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments? Or is it a combination of these and other factors?”
That question “has important ramifications for the foreclosure crisis and how policymakers should address loan modifications, as they surely will in the coming weeks and months,” the Comptroller added.
His remarks also provided a preview of the second OCC and OTS Mortgage Metrics Report to be published later this month. The report will show continued increasing delinquencies and foreclosures in process for all first-lien mortgages held by the largest national banks and federally-regulated thrifts. However, the report will show new foreclosures decreasing by 2.6 percent from the second quarter.
The mortgage metrics report covers nearly 35 million loans worth more than $6.1 trillion, or about 60 percent of all first-lien mortgages in the United States. The quarterly reports are unique in that they are not merely surveys, but instead consist of validated, loan level data using standardized definitions for prime, Alt-A, and subprime mortgages, and standardized definitions for loan modifications.
“We believe the reports include the most accurate and reliable data on mortgage performance that is available today,” Mr. Dugan said. “And in addition to providing more clarity about mortgage performance generally, the data have proven to be exceptionally valuable for supervisory purposes.”
That's great eh? We spend trillions of dollars bailing out banks and borrowers. Yet they still cannot seem to figure out the real problem is UNAFFORDABILITY!. It does not matter how you modify a loan, if the buyer cannot afford it he WILL default. How much extra will these lenders lose by holding that property for another year or 18 months. They had the chance to foreclose and sell months ago. Now they must start the process again, and a year from now they end up foreclosing anyway. What will the addition loss be after another 18 months to 2 years of price declines? Mortage mods might make sense in some specific cases. But in the vast majority of cases this is just putting the borrower on life support for a while. They are already brain dead, pull the plug and move on.