Below is much of the text of an article posted on the Atlantic.com analyzing results of mortgage modifications in the first and second quarters of 2009. I believe a few more accurate conclusions can be drawn: One must remember, the ultimate goal of a successful mortgage modification is to negotiate ‘affordable’ payments. Evidence suggests that many of the modifications in the first quarter were doomed because they weren’t affordable. Ask yourself, “would I be satisfied with a new payment of 31% of my current monthly income?” Secondly, is your new current income foreseen as stable for the forseeable future? If so, call me for The REST Report. The REST Report uses the bank’s own software to calculate beneficial mortgage loan modifications, or failing that, short sale offers the bank is obliged to accept.
Yesterday, the Office of the Comptroller of the Currency and Office of Thrift Supervision released a report on mortgage modification metrics for the second quarter of 2009. As you might guess, it was not pretty. But it showed some interesting insights. I found notable the new trend in mortgage modification strategy, and its staggering re-default statistics.
First, I’d urge anyone with a keen interest in the mortgage market to at least skim the whole thing, as I couldn’t possibly capture all 46 of its pages in a blog post. But one of the most interesting trends I think it shows is that mortgages are being modified with greater attention to principal.
I invite the reader to follow the link on my home page to the page that generally explains how to calculate a mortgage modification. In the first quarter of 2009 principal reduction was only used 3.1% of the time. In the second quarter, however, that percentage increased to 10%. That’s a pretty drastic increase, with one-in-ten modifications now reducing principal.
So what’s the cause of this increase? It’s hard to say. One reason might be that interest rate reductions and term extensions alone weren’t enough to make the payments affordable for the borrowers. After all, you can only make interest rates so low or terms so long. The statistics in the chart might support this, since interest rate reductions and term extensions have also increased over this period.
The OCC report suggests another reason why principal reductions might be a good idea:
Principal reductions reduce monthly payments as well as increase the equity in the home, which may contribute to the borrower’s willingness to continue making payments on the loan. Why is that willingness to pay so important? Because re-defaults are quite bad.
They do seem to be improving slightly for Q2, but the statistics still show more than one-in-four borrowers receiving modifications from the first quarter has already re-defaulted just three months later. The chart also shows that over half of borrowers receiving modifications in prior quarters have defaulted again after a year. Such results indicate that these modifications are often grossly ineffective at preventing foreclosure. More aggressive modifications, probably specifically lowering principal, will help those rates.
It’s hard to tell if we’re really seeing systematic improvement in re-defaults from this. But I suspect as banks and servicers continue to modify these mortgages aggressively, reducing principal, these re-defaults will improve. Yet, that improvement will likely be limited. I think it will be extremely difficult to get the year-later re-default percentage much below 30%, unless incredibly extreme payment reductions are made — probably much greater than 20%.
This YouTube video says it all. Go here: How to Get A Beneficial Mortgage Modification Now
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Originally posted 2009-10-02 21:26:42. Republished by Blog Post Promoter
