Home loan modifications not doing the job
Filed under: Economy
Banks hoping to take advantage of the Financial Accounting Standards Board's change to the mark-to-market rule had better tread very carefully. Home loan modifications are not working, according to a report by the Office of Thrift Supervision in today's Washington Post. At least 57 percent of homeowners whose loans were modified missed at least one payment in the nine months after modification, and 35 percent missed at least three payments.
The report also found that an increasing number of borrowers default on their loans before making a single payment, which matches what the FHA found.
Although the new mark-to-market rule allows banks a lot of leeway in how they value mortgage-backed securities, banks must be careful not to set a value for these products that's too high. Given that loan modifications are failing at such a high rate, the value of these mortgage-back securities are still very hard to peg.
The problem with the loan modification program so far is that most borrowers received loan modifications that did not actually lower their monthly payments. The Office of Thrift Supervision found that the more a borrower's payment is lowered, the more likely he or she will stay current on the loan. Does that finding surprise you? It doesn't surprise me either.
The number of homeowners falling behind is increasing. This increase could be a sign of fraud, which is what the FHA suspects, or it could be that the loans were not properly reviewed. But, this also could be a sign of a worsening economic environment and an increasing number of job losses. The most likely scenario is that all three reasons for failure are factors.
Lita Epstein has written more than 25 books, including The 250 Questions You Should Ask to Avoid Foreclosure.
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Reader Comments (Page 1 of 9)
4-03-2009 @ 5:12PM
TOP said...
of course not in most cases it's not the mortagee payment
it's the taxes that kill you
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4-03-2009 @ 5:12PM
lennys said...
no kidding ,americans are living so far over there heads it is scary.even when you assist them they still fall behind.live within your means and throw the dam credit cards away.
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4-03-2009 @ 5:09PM
ilkee said...
Lenny that's not slways the case. When people lose jobs & can't find another one, (since the Nobama stimulous is doing such a wonderful job), something has to give so that you have food on the table & utilities, those 2 in themselves eat up an unemployment check.
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4-03-2009 @ 10:25PM
Ron said...
Gee, sorry that Obama's plan is not fixng things overnight. Guess it was the 8 years of republican greed that caused the problem to begin with. Didn't see the republicans come up with any brilliant ideas. All they did was complain that this wont work or that wont work.
4-04-2009 @ 11:10AM
Gary said...
Ron has an incredibly short memory...all Democrats knew 25 years ago trickle down economics NEVER work...right...so why is giving $750 billion to banks and lobbist interest earmarks now the way to go?
The greed is with people like Ron...who were there lobbying congress for the past 8 years.
Ron I read Animal Farm...I saw the play book for this administration 40 years ago.
4-03-2009 @ 5:12PM
Duke said...
With ARM's and sub prime mortgages still out there, expext more foreclosures. Unempoyment here in Michigan is at 12%. No surprise Michigan is like number 5 on the list of most foreclosed homes. Jobs are vanishing like water on the sidewalk on a hot day. Unless mortgages can be written down to a low fixed interest rate, there will be more foreclosures. When a mortgage company writes down such a loan even for people with a low credit rating, the recipient of the loan should have such a loan on their credit report and not be able to borrow for 5 to 7 years as a stipulation of lowering their monthly payment significantly.
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4-03-2009 @ 5:12PM
Colleen said...
Here is what irks me beyond reason. My Father has never defaulted on a home loan, has never missed a payment, often throws extra towards the principle in order to pay off his mortgage that much sooner and yet when he asked if he could jump on the lower interest rate bandwagon every lender turned him down. He "doesn't qualify" according to their standards. He has worked his whole life, built a company from the ground up, rented a home when he couldn't afford to buy, saved and invested his income where possible so that when he was ready he could put a 30% down payment on his home only to be told, "You don't qualify for a lower interest rate." What nonsense.
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4-03-2009 @ 5:52PM
LARRY said...
KEEP YOUR HEAD HIGH. YOU GOT AGREAT DAD.HE WILL MAKE IT !REMEMBER GOD IS AT THE WHEEL,OUR WHOLE SYSYEM IS CORRUPT!I HAVE THE SAME PROBLEM. THE SAME MORGAGE CO. THAT QUALIFIED ME I CAN NOT REFINANCE AT LOWER RATES. BECAUSE I WENT IN WITH STATED INCOME. NOW THEY NEED TAX PAPERS IT DONT MAKE SENSE.BUT WHAT CAN WE DO EXCEPT HAVE FAITH IN GOD! GOD BLESS LARRY
4-03-2009 @ 8:03PM
CB said...
Your Dad is an American. He is who pays for all of the ones that are sucking off of the system. The government is making it more and more possible for the leach's to succeed and less and less for the American's paying the bills.
4-03-2009 @ 5:13PM
KAL said...
If the interest rates are at 4.5% and i have a 30yr.fixed at 6.75% would it be a good moved to get a loan mod- loan now ???im trying to get payments down to 1200 monthly instead of 1560.00, theres so much info out there , its hard to know who to trust?/
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4-03-2009 @ 9:42PM
suds said...
Consider the cost of closing. Today in order to get 4.5% you have to buy it down, so in the end are the estimated closing costs going to be made up quickly enough for it to be worth it? In most cases your scenario would be worth it. A good rule of thumb is that if you aren't getting atleast 1% reduction in interest without a buy down, then it's not worth it. And don't let anyone charge you more than .75% or 1% origination.
4-03-2009 @ 5:09PM
Kelly said...
Where is the reward for the people who do pay their mortgages on time? Shouldn't we be entitled to some breaks? If our payments were reduced, we could put some of that money back into the economy -- which is in dire need of stimulation. Don't pay your bills? Don't worry! Go ahead and file for bankruptcy and default on your mortgage. The rest of us will foot the bill as usual.
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4-03-2009 @ 5:56PM
sam said...
you go girl ...................couldn't agree with you more.
4-03-2009 @ 6:59PM
Dave said...
If your home loan payment is more than 38% of your net monthly pay you can ask your bank to redo your loan.Go to WWW.financialstimulus.gov and see if your bank is on the list. Homes have lost value and this program helps people who are current in the loan.
4-10-2009 @ 8:52AM
Lynne said...
We were trying to refi before one of us lost our jobs. We were not in over our heads and have good credit but we both worked at the same place and cuts started happening. The Bank kept putting us off. Both my husband and I got laid off the same time and then the Bank ( Chase) after taking days, hours on hold and numerous transfers says of course now they cant refi because we are not working. ( We could do the payment at the much lower rates) BUT don't pay the mortgage for 3 months and they will look at a modification. Are they nuts encouraging people to NOT pay?
4-04-2009 @ 12:36PM
cheexs said...
Kelly..........RIGHT ON THE MONEY......SIMPLE ISN'T IT.....
4-04-2009 @ 1:07PM
Harely611 said...
Do you think that we don't want to pay our bills? I had to leave a job that I had for 18 years. I was making over $26 an hour. Now I'm behind in my mortgage payments and you want to begrudge me some help for a loan that the mortgage company admitted that they shouldn't have given out in the first place? They gave out thousands and thousands of fraudulent loans.
You're very blessed to be able to make your mortgage payments every month. Congratulations and continued success to you! What if you happened to lose your job through no fault of your own? I am not asking you to foot the bill for anything. I have worked for 29 years of my life and have never asked for any help from the government for unemployment, welfare, food stamps, etc...
I have not filed and will not file for bankruptcy. I know that I am responsible for the bills that I have accrued. All I'm asking is that the mortgage companies, that acted with all that greed and qualified all those people for ARM loans that have now ballooned out of control, find a way to help people stay in their homes. Or maybe it would be better if all those people were tossed out in the streets?!?! It's cheaper in the long run to help people out a little now than to have them living on the streets, shelters, welfare, missions or prisons for the rest of their lives.
4-04-2009 @ 3:12PM
Daughternmbr1 said...
Everything in this world isn't black and white. Things happen that are unforseen, such as sickness, job loss, tragedy. Its the people who suffer. The CEO's with their huge salaries go begging to save their companies, hey why not cut your pay, why not give up your bonuses?
The companies get the bail out not the people, we just get to pay.
Nothing is being done for the people. The greedy bank has me at a 13. 5 percent interest rate and will not modify it to let me catch up and stay in my home of 10 years. My husband became ill and had to wait 2 years for social security to agree to pay him.
God bless all of you that have the luxury of sitting in judgement of others that you know nothing about.
4-05-2009 @ 7:56AM
RT said...
Kelly, I completely agree that there are folks who take the 'easy' way out, i.e., default on their obligations, and that's not right. But we must also recognize that many people are in dire straits because of circumstances beyond their control; they need and should receive help. As for those of us who have been able to pay our bills faithfully, why should we receive a 'benefit'? Shouldn't doing the right thing be reward enough?
4-03-2009 @ 5:13PM
Annee said...
Colleen said...
Here is what irks me beyond reason. My Father...turned down for refinance....
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Seems strange Colleen. Unless he's applying for some government bailout, which require you to be a loser.
We were not qualified by our lender for a fast track no fee refinance because our property is in a trust (more legal finagling needed). However, we can apply for a regular refinance.
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