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.
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Remember, the people that denied the existence of a bubble, denied there were any economic problems, lied, lied, and lied, are now providing predictions for the number of foreclosures in the coming years. Would you expect the predictions to be more rosy or dire?
That fence is looking pretty good.
In a research note titled "Foreclosure Update: over 8 million foreclosures expected" updated last week, Credit Suisse analysts are now forecasting 8.1 million homes will be in foreclosure by the end of 2012, representing 16% of all households with mortgages.
The analysts projected this could be as low as 6.3 million in a mild recession, with a somewhat successful loan modification program (re-default rates at around 40%), and as high as 10.2 million in a more severe recession. Note: the Comptroller of the Currency John C. Dugan noted this morning that re-defaults rates appear to be well in excess of 50% for recent mods, much higher than the hoped for 40%.
Ok, I'll get off the soapbox, but I always return to this tidbit to put things into proper perspective. They set up camp at ground zero.
The Federal Deposit Insurance Corp. has leased 200,000 square feet of space in Irvine for a temporary office that will manage receiverships and liquidate assets from failed financial institutions in the western United States.
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In choosing Irvine, the agency is benefiting from Orange County's depressed office market, which has been hurt by the collapse in recent years of New Century Financial Corp., Ameriquest Mortgage Co. and other financial companies.
Alot of these people where wanting to buy at Nordstroms when their budgets only allowed Walmart. They were unrealistic and could not manage money to begin with.
Or in more simple terms, you can't fix stupid.
Yep, not surprising at all. Mortgage modification just buys them 6 more months of free rent, or more.
I don't even know if I can blame them - if I was sitting in a crappy track home that I bought for $600k that is now worth $300, I'm not sure I would hold onto it either. Sure, a better interest rate might keep a few in their homes, but most are still thinking about the $300k they lost - and they are going to get out no matter what.
I doubt I would stay in a house if I was 300k underwater either.
Loan mods are obviously NOT the answer. It may seem obvious to us on the sidelines of the market. Unfortunately the retards in Washington seem to have no clue how to fix the market. The answer is to let the market correct, foreclose on homes in default, and sell them to families that can pay for them. This and only this will fix the market and the economy. When people can buy homes at a reasonable price they will have money left over to spend. That spending will end the recession. Keeping prices high will curb spending and drag this thing out for years if not decades.
You know what gets me - these folks who are looking for mortgage modifications are thinking that they are going to go to the bank-d tell them that they can't afford the $3500 a month then the bank is going to give them a monthly mortgage that will center around what the house is worth NOW as opposed to what they paid for it - rightttttttttt.The banks are not going to forgive the difference between the loan amt and what the house is worth. You took a loan for $600k - that, plus interest, is what you will owe! I know for a FACT what allot of these loan "modifications" are now are balloon payments. Sure - the banks will knock off about $1000 on your monthly payment for 20 years - but once that 20 years is up - you now have a balloon payment....what makes it worst - you are looking at a majority of these troubled homeowners that are in their 30's and 40's - people are living longer - GREAT - we will have another housing crisis where senior citizens (who of course can collect SSI BECAUSE THE WELL IS DRY) loosing their homes...LET THE FREAKIN'HOUSE GO!
Yup, that about sums it up!
Let the freaking house go. Most of the mods make people debt slaves. They put people in loans that are nothing more than expensive long term leases. You are absolutely right about it causing another crisis later. The only reason I can think that they would do this is to spread the losses over a very long time. This will help the banks avoid failure. They know that nearly all of the people will sell or refi long before the balloon comes due. It's another method the banks are using to avoid posting the losses.
It's all about the P&L reporting that these banks do. (you hit the nail on the head "X")You don't report a loss until there is an actual loss - (in this case that would be the home going back to the bank itself) Profit (or revenue) is recognized much differently. That's why you see the short sale homes sitting - once that home is sold - it then has to be reported at a loss (just like the foreclosures). The banks aren't happy when these folks are just walking away from their homes - that means that they have to post that loss on their books sooner than later. Trust me - if every "in-crisis" homeowner actually tried to "work" with the bank to do a short-sale, you would see very few homes selling at all.
Getting mortgage information is a great benefit. There is so much to learn and this is a great way to learn it.
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