Industry promises more loan mods
Roadmap to Recovery: Report shows more than half re-default
By Matt Carter, Tuesday, December 23, 2008.Editor's note: As government officials continue to deliberate a path forward to curb the surge in foreclosures and restore the vitality of the housing market, Inman News is encouraging readers to share their views and engage in a discussion in drawing up a "Roadmap to Recovery." Click here for details.
The HOPE NOW Alliance of mortgage loan servicers said Monday they're on track to modify nearly 1 million mortgages in 2008 and expect to do twice as many or more loan modifications in 2009 to prevent foreclosures.
Federal banking regulators also issued a report showing the number of loan modifications on the rise during the third quarter, but said more than half had re-defaulted after six months.
Comptroller of the Currency John C. Dugan said re-default rates continue to rise even six or eight months after loans are modified, a trend he called "very troubling," and which "underscores the need to understand why these modifications have not been more sustainable."
Meanwhile, lawmakers are looking at tying the release of the second $350 billion of the Troubled Asset Relief Program (TARP) to a more aggressive government-backed loan modification program.
Rep. Barney Frank, D-Mass., wants TARP to fund a $24 billion insurance program proposed by FDIC Chairwoman Sheila Bair, Bloomberg reports.
The program calls for the government to absorb up to 50 percent of participating lenders' losses in the event of a re-default when they agree to modify troubled borrowers' mortgages to reduce their monthly payment to 31 percent of income. The FDIC assumes that even if one out of three loans ends up re-defaulting, the government could prevent 1.5 million foreclosures (see Inman News story).
Frank also reportedly wants to revamp the FHA's "Hope for Homeowners" refinance program, which Secretary of Housing and Urban Development Steve Preston in an interview with the Washington Post last week acknowledged has been a failure. But Preston blamed Congress for imposing too many conditions on the program.
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Submitted by Jillayne Schlicke on December 23, 2008 - 10:05am.
58% of Indymac's loan mods are re-defaulting by the 6 month mark. Some would say, "but we're helping 42%." However, this is a dismal failure in any market.
I question whether loan modifications are actually helping the homeowner. Perhaps loan modifications help the bank more. The bank gets to put off reporting losses for yet another month, another quarter so their executives can pocket more income and bonuses.
Modifying the mortgage payment might only be half the problem.
If the consumer is strapped with other unsecured debt like credit cards, we're just setting the consumer up to fail.
The consumers TOTAL debt ratio is what I'd like to see for the 58% who are re-defaulting, compared with the total debt ratio of the folks who have not re-defaulted.
WHY are we setting homeowners up to fail? Why not help them through the foreclosure process, allowing them to leave homeownership behind, returning to the housing market as renters, in order to begin rebuilding their credit NOW instead of putting off the inevitable?
Letting the housing market crash means we reach the bottom sooner and can begin the recovery process sooner rather than dragging this out for years and years. There are thousands of home buyers waiting to buy.....when we reach bottom.
What happens when the artificially low interest rate on those 42% resets? Do we then offer another loan mod?
I'd like Barney Frank to address that question.
Submitted by Anonymous on December 23, 2008 - 1:34pm.
With only 1 in 3 modifications resulting to lower payments, high recidivism rates should not come as a surprise to anyone. I suggest that Barney, Shiela and the gang read "Deleveraging American Homeowners" by Alan M. White, Valparaiso University School of Law (Study/Report Updated 12/18/2008). http://www.hastingsgroup.com/Whiteupdate.pdf
Submitted by Jillayne Schlicke on December 23, 2008 - 1:54pm.
Hey Michael, that was an exceptionally interesting PDF. Thanks for the link. (It's only 2 pages, readers, and provides a good summary.)
Question: I'm concerned about this quote from Professor White's article:
"The average foreclosure loss on a first mortgage in November 2008 was $145,000 or
about 55% of the average amount due."
The cost of foreclosure use to average a whole lot less than $145K. I have heard anywhere from $50K to $60K.
If this is true, this is a staggering find and suggests that banks and servicers are already insolvent on paper.