Mortgage loan modifications, re-defaults and waiting for more data before pulling the plug

Filed under: loan modifications — admin @ 9:35 am

In a one-two punch for industry prognosticators, self-styled experts and finger pointers, loan modifications are not performing well.  Recently styled as the cure du jour for economic recovery, the news is not promising;  however, before these teaspoon deep thinkers run for the next “sure bet” for salvation, it is important to remember that the facts aren’t all in and the data is skewed – we are only talking three months of data.  I have no evidence suggesting that modifications ARE, in fact, the answer…just a sober recognition that policy should be long term in scope rather than some “will o’ the wind” reaction to mere weeks of data.  (/cough Paulsen and Bernanke.)

In the first real assay of loan mod performance during the first quarter of 2008, over a third of all modified loans were delinquent again within first three months and over half within six months.   That is truly bad performance.  It means that these borrowers are RE-defaulting on their loans after a work-out has been reached often within weeks of completing the transaction.  But does that mean that loan mods are a waste of time?  The only real answer is maybe.

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More on Loan Modifications

Filed under: loan modifications — admin @ 4:59 pm

Here is an addition to my previous post:

Coakley: Foreclosure Relief Program Has Failed
By Matthew L. Brown
Worcester Business Journal Staff Writer
09/17/08

State Attorney General Martha Coakley has submitted testimony to the U.S. House Financial Services Committee blasting what she calls the mortgage industry’s lack of action on loan modifications.

Coakley is scheduled to testify before the committee, which is chaired by U.S. Rep. Barney Frank, D-Mass., tomorrow regarding the state’s investigation into auction-rate securities fraud.

In the testimony submitted to the committee, Coakley argues that the spiking number of home loan foreclosures in Massachusetts is “due in large measure to unsound and predatory lending practices.”

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