Many Borrowers Re-Default After Mortgage Is Modified

[DuaneBidoux]

Source: Reuters/CNBC

Many borrowers who received help with mortgage modifications earlier this year tended to re-default on their payments, a top U.S. banking regulator said on Monday, citing recent data.

"The results, I confess, were somewhat surprising, and not in a good way," John Dugan, head of the U.S. Office of the Comptroller of the Currency, said in prepared remarks for a U.S. housing forum.



Read more: http://www.cnbc.com/id/28112901

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This is extremely bad news for several reasons. The slide in house prices cannot possibly stop until the mortgage market stabilizes and if only half of modifications work then that slide will not stop, leading ultimately to a continuation of the spiral downward.

Secondly, if only half of them are working out the goverment (any government) will conclude that it is extremely inefficient to help people with mortgage problems when it is so inefficient (in other words, when there is so little bang for the buck). I would say there is a good chance if this continues that more money will not be used this way. Thus, more people will hurt.

[wtmusic]

1. Keep bailing that sinking rowboat with my kids' money

It would be funny if it wasn't so pathetic.

[w4rma]

2. Jobs are the problem. Republicans / 'free' trade pushed down wages to where nothing is sustainable.

Also, credit card contracts need to be modified, also. You can't just look at one type of loan and hope that fixes everything.

[mrreowwr_kittty]

3. People are losing their jobs. You can't 'modify' someone into employment. nt

[Robbien]

4. Usually the modifications were on very bad terms such as only paying partial interest

with the remainder of the interest due being tacked on to the principal of the loan. Thus making the loan even larger while the value of the home kept decreasing.

Banks were not making modifications to the over-valued principal amount and very little modification to the interest rates.

Of course the loans then re-defaulted.

[danalytical]

9. Why should principles be adjusted?

"Banks were not making modifications to the over-valued principal amount"

I know the economic reasoning, but as far as fairness goes, how can we justify actually lowering the original amount borrowed. That amount was what the buyer agreed to pay a seller? I can see adjusting the tacked on interest, in the case of people who were victims of predatory lending like the elderly or just plain swindled.

But what about the folks who purchased the $300K home on a $50K a year salary with the hopes they could sell the house for a profit in a year after paying an interest only loan in the meantime?

Should that person lose the home or should we force a bank who PAID the seller $300K to settle for $250K? These are a large portion of the foreclosures, it happened a lot. Just watch HGTV for an hour. That channel is like the bad financial advice and greed promotional network.

[Robbien]

10. The majority of mortgages made during the last five years were built on fraud

Realtors overvalued homes, brokers pushed bad deals and hid costs adding them to principal, banks hid costs and terms adding them to principal. And the whole cabal colluded together making sure the customer was thoroughly confused about what was happening.

Yes, the customer has some responsibility here, but when one is unknowingly dealing with an organized crime operation should the organized crime operation benefit?

[danalytical]

12. Hold on a second there

Most people who bought these overvalued homes first sold their own home at an inflated price. Nobody forced those folks to purchase homes they couldn't afford. I knew I could afford what houses were going for and I was forced right out of the market and had to rent for the past 5 years. If I had a home to sell I would have sold it and made lots of money to then turn around and purchase a new home for my family. So they took the rewards when it was in their favor, why not the consequences? Should they give back the $100K extra they made on their own home sale?

[evilkumquat]

17. It Wasn't the Realtors... It Was the Appraisers

Realtor's cannot "overvalue" a home. All they can do is suggest to a seller what a home may sell for under the current market. Granted, plenty of sleazy real estate agents exist who will lie or inflate what a home could sell for merely to get the listing (Honest Realtor A says the home should sell for $100,000; Sleazy Realtor B lies and says the home should sell for $125,000; stupid, greedy seller gives his listing to Realtor B), but they have zero control over what the home sells for or what the bank will loan on. Bottom line it is the between the Buyer and Seller to determine the final asking price.

Enter the sleazy appraiser.

Appraisers know going in what a home is supposed to appraise for in order to get the loan. Banks WANTED to loan the money, so the appraisers were asked to make sure their figures justified the loan.

Supposedly, after the last time appraisers helped screw up the housing industry, laws were put into play to prevent them from doing so again. Unfortunately, the laws that were passed had no teeth, so here we are again, with a nation of overpriced homes and a rapidly increasing number of foreclosures.

[redstateblues]

15. I used to watch those HGTV shows and feel anxious that my house was only going up 2% a year

They really are promoting the behavior that led to a lot of this stuff

[TreasonousBastard]

16. It won't happen but it would be interesting...

if the people who sold all that overpriced housing had to pick up the mortgages.

(Then there would be ample justification for reducing the principle.)

[zipplewrath]

18. It's a variation of what will happen anyway.

The reason for adjusting the principal and therefor the monthly payment is because of the alternatives. If the house is forclosed, the bank won't be able to sell it for the loan value anyway. A loss is coming for the bank one way or another. So the idea is to have the bank take a loss on the mortage, but still have a mortgage to service. The homeowner stays in the home. The bank still has a "sellable" asset (the new mortgage), and there isn't some foreclosed property sitting vacant in a neighborhood.

It will work if you truly lower the principal amount enough. But that is hard for the banks to do. And it is generally an
"unrecoverable" loss. An alternative is to create a secondary lien on the house for the lost principal. No payment is made against it, but upon sale of the home, the bank can still attempt to recover it's loss. It will also hamper any attempts to add additional debt on the house in the future (refi's, second mortgage, etc.).

[xchrom]

5. you'd think they might look at the details of their program.

but that might make too much sense.

[onyourleft]

6. The article, however, does not address whether or not...

..the people who defaulted again had a job that paid wages great enough to support the redefined mortgage. Perhaps there is little "bang for the buck" because people have lost their jobs.

[TreasonousBastard]

14. It does say that the greatest problem was with...

prime mortgages, but they won't know why until the report comes out.

Perhaps some have lost their jobs, but perhaps more have just dumped the house because of negative equity, speculating in second and third homes, or just couldn't really afford that place no mater what the deal.

[flvegan]

7. I'd like to see the data as well as the modifications themselves.

[AllentownJake]

8. If they gave the 700 billion to the American people

to pay off their debts instead of to the banks to buy other failing banks. No one would be in default right now and the banks would have their money.

[ClarkUSA]

11. You can't pay for a mortgage under any circumstances if you lose your job.

Many of these borrowers are living on the edge and it doesn't take much to go over it. Even more people should only rent and forget
about owning a home; it's just too expensive, no matter what the mortgage modification.

[Double T]

13. Wages are stagnant. Jobs are becoming scarce. Unemployment......

continues to skyrocket. The mortgage market can not stabilize with jobs and wages in the tank. Looks like a case of simple math to me; the extremes do not meet the means. The automobile will become home for many of the home-less. pathetic.

[DiverDave]

19. So, I bought my house before this sort of thing started.

and I got vetted up the wazoo.
I'm having trouble, but am making my payments...barely.

And now they tell me that if I would have got a no money down, interest only loan, I would deserve taxpayer HELP!!??

I feel like a fucking idiot for buying when and how I did.:sarcasm: