Loan Modification vs. Loan Modi “fiction” – Episode #94

December 11, 2008 by  
Filed under Episodes


Like my new term?  Turns out the loans that were modified in Q1 of 2008 are already in trouble in many cases.

According to the US Government OCC, the Office of Comptroller of the Currency:

  • 53% of these loans had re-defaulted by being more than 30 days past due just 6 months after the loan modification.
  • 58% of these loans had re-defaulted by being more than 30 days past due just 8 months after the loan modification.
  • 36% of these loans had re-defaulted by being more than 30 days past due just 3 months after the loan modification.

Maybe there is a silver lining in all this.  This data only includes nearly 35 million loans worth more than $6.1 trillion, or about 60 percent of all first-lien mortgages in the United States.  So, perhaps, the data is somehow skewed.   But, I doubt it.  This data sounds right to me.  Plus, we are missing the really monster statistic, how many modifications are being done under the government backed plans versus the lender’s own plan for modification.

Here’s my view on this.  Lenders do not like the plans that the government has come up with like the H4H plan I reviewed over on Zillow.com, so instead they try to modify a loan to a bare minimum.  The result, is that modification is not working.  Why doesn’t the bank go with the government plan? Well, the H4H plan appears to get all the upside to the government — the gov gets 50% of all equity upside — so the lender doesn’t seem to have an incentive to use the plan.

Round two of loan modifications are about to start.  Hopefully, these won’t be loan modi”fiction”s.

Similar Posts:

Comments

Ask a question, make a comment, share tips