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Loan Modifications Will Only Exacerbate Housing Troubles

mycmps | 08 December, 2008 21:41

Loan Modification Results With High Re-Default Rate

As 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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Comments

defaults

Sam Mason | 09/12/2008, 15:23

this is completely a rip off of the taxpayer

Mods

purchaseperfect | 14/12/2008, 20:22

purchaseperfect

On 60 minutes tonight a gentlemen spoke about the looming resets of the majority of Pay Option ARMs I/O Alt-A loans. He indicated the rate of default on these loans estimated at just under 60%. With this securitized volume worth upwards of $1 Trillion we may be staring at a second wave, equal to the current level of defaults in the residential housing market we have now. This is detrimental, because the traditional loan sizes of these loans are much higher, and though the borrowers are traditionally stronger, the impact of the defaults on investors will be enormous.

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