Mortgages Continue to Default After Modification

by Ken Kappel on February 13, 2011

Clearly HAMP and other government programs are not working to keep people in their homes over time.  The re-default rate is astonishing as we see in a new report from Moody’s reported on in DSNews by Carrie Bay. Read her entire article here.

New statistics from Moody’s Investors Service might lead one to think that mortgage modifications are merely a temporary fix in most cases, serving to simply defer an eventual resolution of foreclosure, or in a best case scenario, another foreclosure alternative in which the homeowner relinquishes the property. “We have found that a loan that is modified and [then] reported as current is three times as likely to default over the ensuing twelve months as is a current loan that has not been modified,” Moody’s said in a report issued Friday.”

”The agency studied two million loans backing residential mortgage-backed securities (RMBS) pools securitized after 2005. While 47 percent of all loans in the sample that were classified as current after a modification defaulted within 12 months, only 16 percent of unmodified current loans did.”

”Moody’s says the default rate on unmodified current loans varied significantly according to the loan type, with jumbo loans defaulting at a much lower rate than subprime loans. Modified loans, however, defaulted at roughly the same rate across all loan types. The agency says this implies “that a borrower’s credit at the time that they took out a loan means little by the time they face enough hardship to warrant a loan modification.”

”Because defaults on modified loans are driven primarily by the borrower’s ability to pay, Moody’s stressed that the terms of the modification can have a large impact on its ultimate success. Among modified subprime loans, every 20 percent reduction in monthly payments reduces the 12-month default rate by 10 percent (in absolute terms). This relationship is even slightly stronger among Alt-A loans,” Moody’s explained in the report.”

”The agency says modifications that include principal forgiveness, featuring an average payment reduction of 34 percent, have resulted in the fewest delinquent borrowers at the end of their first year. Rate reduction, term extension, and forbearance modifications, with average payment reductions ranging from 20 percent to 25 percent, have resulted in higher levels of delinquent borrowers.”[Emphasis Added.]

Ken here.  Clearly the way of the future is for principal reductions in mods. Those will likely be successful for the homeowner and investor in Mortgage Backed Securities. This is to the disadvantage of loan servicers who make more money on foreclosure and by charging illegitimate fees, which often force homeowners into “surprise” foreclosure.  There oughta be a law! The laws in place now favor Banksters over homeowners. Which side are you on? Tell your Congressperson in no uncertain terms.

At the same time seek a plan to repudiate illegal housing debt.  We will be offering more in this vein as current law cases work themselves out in court. We see more and more cases being decided on behalf of homeowners, as you will note if you follow this blog.

Pay close attention because we attempt to give you the important news to enable you to have the information, knowledge, confidence, courage and tools to repudiate your illegal housing debt.

Briefly back to the article, which identifies some of the prime Bankster malefactors.
”Moody’s calculated six-month re-default rates on approximately 78,000 loans that were modified between the beginning of 2009 and mid-2010 by eight major servicers. The breakdown of each company’s modification re-default rate: [Emphasis Added.]

”Bank of America – 33%
”Wells Fargo – 29%
”American Home Mortgage – 26%
”Ocwen – 24%
”GMAC Mortgage – 23%
”JPMorgan Chase – 22%
”CitiMortgage – 20%
”Litton Loan Servicing – 20%

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