Update: Surprise: Low Payments, Lower Redefaults.
Original post: While the mortgage lending industry pleads with us that they are helping scores of families with loan repayment agreements and loan modifications (with the same fervor that they refuse to explain where the bailout money went), others were concerned that their numbers lacked a certain truthiness. See Hope Now Alliance’ Numbers Flawed here.
Just recently the industry reported that it helped 2.2 million homeowners avoid foreclosure in its history, they did one million in 2008, and they plan to double that in 2009. See Hope Now Press Release here. Obviously they are attempting to avoid the residential mortgage cramdown giving bankruptcy judges the ability to modify home loans like they can for loans for vacation homes and boats. (Of course, Citibank broke ranks last week and agreed to such a provision. See Washington Post article here. Maybe this secures them more bailout money that they can pocket rather than lend.)
Regardless, there are some numbers out that show the Hope Now Alliance numbers to be more than suspect. At the OCC National Housing Forum, John Dugan reported that the default rates after there had been a modification of the loan (not merely a payment plan, but a formal change to the loan documents), were “surprisingly” bad.
Three Months After Modification – 36 percent of borrowers in default
Six Months After Modification – 53 percent of borrowers in default
Eight Months After Modification – 58 percent of borrowers in default
Office of the Comptroller of the Currency. See Dugan’s remarks here.
Mr. Dugan provided few answers, only questions about the reasons for the high redefault rate: “Is it because the modifications did not reduce monthly payments enough to be truly affordable?” or “Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments?” (One might argue this is the same question phrased differently.)
OCC chart, click to enlarge
Remember, this is only data regarding loan modications. Hope How Alliance (sorry for the slip) says less than half of the folks they helped got an actual modification. Loan repayment plans undoubtedly have a much lower success rate because these only spread delinquent payments out over time and provide no lasting relief to a borrower. OCC’s numbers are as good as they get.
Bottom line is that the Hope Now Alliance’s numbers are worthless propaganda meant only to please the public. Their numbers include modifications and repayment agreements, but they provide no details to demonstrate they really helped folks. Helping people avoid abusive loan terms is not their plan when more than half of the borrowers are in trouble again in six months. The industry does not really want to fix this problem or allow judges to do so, unless they think they need more taxpayer money like Citi.
Filed under: National Foreclosure News
