Loan Modifications Not Helping Homeowners

WASHINGTON — Though lenders are boosting their attempts to curb record-high home foreclosures, fewer than half of loan modifications made at the end of last year actually reduced borrowers' payments by more than 10 percent, data released Friday show.

The report, based on an analysis of nearly 35 million loans worth more than $6 trillion, was published by the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision. It provides the most detailed and broad analysis to date of efforts to stem the foreclosure crisis, which President Barack Obama is trying to combat with a $75 billion plan to promote loan modifications.

The report helps explain why many loans are falling back into default after being modified. Many borrowers and consumer groups contend that the modifications offered by the lending industry aren't very generous, despite more than a year of public prodding from regulators.

For instance, nearly one in four loan modifications in the fourth quarter actually resulted in increased monthly payments. That situation can happen when lenders add fees or past-due interest to a loan and spread those payments out over the 30- or 40-year period.

Perhaps unsurprisingly, the report found that loans were far less likely to fall back into default if a borrower's monthly payment is reduced by a healthy amount.

Nine months after modification, about 26 percent of loans in which payments had dropped by 10 percent or more had fallen back into default. That compares with about half of loans in which the payment was unchanged or increased.

"This new data shows that, in the current stressful environment, modification strategies that result in unchanged or increased mortgage payments run the risk of unacceptably high re-default rates," Comptroller of the Currency John Dugan said in a statement.

But regulators said they saw a positive trend in the data, collected from mortgage companies including Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc.

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Traditionally, lenders have seen loan workouts as a way to get a borrower back on track after a temporary disruption in income. Now, with the economy sinking fast and foreclosures soaring, they are increasingly coming around to the idea to that more permanent changes are needed.

Among loan modifications made in the October-December quarter, about 37 percent resulted in a drop in payments of more than 10 percent, compared with about one-fourth in the first nine months of the year. Regulators saw that growth as a positive sign.

"The trend toward lowering payments to make home mortgages more affordable is moving in the right direction," John Bowman, acting director of the Office of Thrift Supervision, said in a prepared statement.

The Obama administration is aiming to help up to 9 million borrowers stay in their homes through refinanced mortgages or modified loans. Still, the faltering economy, driven down by the collapse of the housing bubble, is causing the housing crisis to spread.

Among the loans surveyed in the report, just over 10 percent were delinquent or in foreclosure, compared with 7 percent at the end of September, the report said. Delinquencies are increasing the most among prime loans made to borrowers with strong credit, it said.

A broader study of the mortgage market last month found a higher percentage of problem loans.

The Mortgage Bankers Association reported that nearly 12 percent of all Americans with a mortgage _ a record 5.4 million homeowners _ were at least one month late or in foreclosure at the end of last year. That's up from 10 percent at the end of the third quarter, and from 8 percent at the end of 2007.

The trade group's study includes more than 45 million loans, 10 million more than the government report.

Comments

[bygollymissmolly]

The banks and mortgage companies created this problem on purpose. They knew when they took the homeowner's teaser rate from 5% to 15 to 20% that the homeowner would not be able to make those mortgage payments. Those interest rates double and in some cases triple the mortgage rate. If the banks and mortgage companies had increased the rates to a reasonable 6-7%, those homeowners would still be in their homes and the banks wouldn't have a foreclosed house on their hands.

But, I truly believe they did it on purpose. They knew the Federal Government would step in and bail them out. In the meantime, there are lots of devalued foreclosed homes on the market for their rich clients to snap up and hold until real estate takes off again, thereby realizing an enormous profit.

This was all by design.

[calirighty]

Who's paying 15-20%? Even if you have bad credit the rate is somewhere around 10%.

[sueinmn]

The loan modification plan is written all wrong! The lowest amount they can lower your payment to is 31% of your GROSS income. Most standard loans are less than that for a payment. How many people can afford to even make that high a pymt. Not many when you add your other obligations in to it. They need to get with reality on these modifications IF THEY REALLY ARE CONCERNED ABOUT HEKLPING. I dont believe they are.

[calirighty]

Sorry. But I read the stimulus plan and the home bail out plan. This is exactly what congress voted for and what Obama signed. I tried to warn people about this before they voted on the stimulus bill but all the lefties on this site badgered me and said that Obama knew what he was doing. I guess you were wrong.

[unite4change]

Calirighty, sorry but if you couldn't comprehend this short article, I don't think you have the capacity to understand the Stimulus Plan or the Home Bailout Plan. Because the article was discussing a plan that was implement prior to Obama becoming president.

[Mavin1620]

The only way to do this is to extend "toxic" mortgages to 50 year arm with no balloon payment, but a 3% to 5% increase in say 5 years. Let this be administered by the US Housing Authority (or whatever), all of whom earn at the rate of a mid-level employee in the 15 grade employee system, except that the cabinet level position. No bonuses, just work the job and go home at night. Hire enough people to do the job right. Bank the mortgage payments. Put in a state-of-the-art accounting system, and make it all work.

Like any other mortgage, it cannot be assumed.

[dadw5boys]

Country Wide and other OVER VALUED homes in the loans by an average of 32 % !!!!!!!!!!


Giveing a homeowner a 10 % discount when home prices have dropped 27 % is not doing much.

Countyr Wide and the Predator Loan Companys should have to give back the big fees they received for over valued home loans.

That is clearly Fraud and Collusion with the property appraiser.
.

[hoopesaz]

"consumer groups contend that the modifications offered by the lending industry aren't very generous"

A 10% discount on a $300,000 home is QUITE generous. Is it enough to come someone in that home? Maybe not. But "generous" is certainly the wrong word to use in this context.

[dadw5boys]

NOT IF THE HOME WAS OVER VALUED ON THE LOAN BY $65,000.00

COUNTRY WIDE OVERVALUED LOANS BY 30% TO 35 % ON AVERAGE !!!!!

[calirighty]

Although I agree the homes were over valued, it was not just countrywide. That is who financed us and our condo was the same purchase price range as all of the other condos in our part of town.

[RI]

Not a principle reduction, just a payment reduction in most cases.

[SangZe]

Where can I get a good pitchfork?

[research]

Hoover Bailed out the Banks, without first regulating them.

Failed then too.

Investing in Americans, in main street,

Always works.

[sofloridafan]

I can tell you why it is not working in FL as I am a small real estate investor...many of the small RE investors I know had 3-5 properties in inventory with exotic intrest only mortgages that they did not qualify on to begin with.( underwriting)..looking to flip them...they are not owner occupied so the bank owns all of them now...last one holding the bag looses.

It is our problem as the schools and services here are mostly funded with RE taxes.

A good place to look for statistics is realty trac .com and you can see national rates of forclosures and look at the median usa price graph. ( median us home value down 50,000 in last 6 months)

[hoopesaz]

Greedy investors and greedy banks backed by a congress who promotes virtually no standards in the interest of letting everyone experience the "American Dream". That's a recipe for disaster.

Yet, Congress, in it's mock outrage, suggests solving the problem by brow-beating the banks in to make more loans to more people who are even less able to repay than they were even 3 months ago. Good idea.

[philosopherkingtomas]

let the banks resell the losses to profitable businesses, that will be a 30% reduction in monthly costs.

[KillTheMessenger]

You could offer me these loans at 80% of their face value and I wouldn't buy them. What for? To go bankrupt on them?

[TJCole]

Many people still don't get it on multiple levels..the banksters are fighting to keep the immoral huge profit they foresaw from this predatory lending...

People can pay the vast majority a normal reasonable mortgage payment but not 11-14% even higher and I am speaking of primary home owners only for now...

We need a plan as I wrote of here previously that keeps the lenders from losing big time and the borrowers from losing their homes over 6 million Families that's 16-24 million Americans maybe more...

is there even rental housing for all these people, and what will it do to that already inflated and limited ever more limited market...

I had a plan that didn't cost the tax payers one dime and for over a year pounded away but neither NY Senator cared to listen and this before the crash in September or so...

Now the Tax Payer may still have to pick up a certain part but considering the money they are throwing at the banksters that caused all this mess we need only spend less than $300 billion and then no more toxic assets period...

"Throw them out in the street" is no a plan...it's simply vengeful, vindictive and ill informed showing others of how little you understand how all this went down and was propagated by America's disgraceful corrupt banking elite...in the majority of cases..!

[Robert59]

It's not working because the house was never affordable in the first place. And these modified loans aren't good deals where the lender takes a shave. He forgives nothing, tacks on 10 to 15K in refinance charges and the payments are pretty much where they were before.

In fact attempting to refinance a home you are upside down in means you've got to either come up with the cash difference or have a lender willing to generate two loans (one for the new value of the home and the other (at higher interest) for the difference between what you owe and the new value).

The only thing that will work (if we're serious about keeping people in these houses and don't care if lenders have to take a hit) is for the government to establish a nationwide baseline. All prices for all home loans are valued at (say 2000). The lender doesn't have a choice but to issue a new loan for that amount and eats the rest.

It won't happen. This charade will play out for years.

[Samalabear]

I've read many articles where the price of housing needs to go down at least to the 2000 level or maybe even 1997 for housing to be even close to the present median income -- which, judging from recent stories of pay cuts and freezes -- is going down. Crazy world. Meanwhile, I've heard Obama talking about "propping up" housing values? To what end? You're right, this will play out for years.

[JohnButrus]

The report referenced above confirms that mortgage loan modification programs will not significantly reduce the unprecedented number of nonperforming mortgage loans, or reduce the mortgage foreclosure rate. Accordingly, the Obama administration should abandon the Treasury Department’s mortgage modification plan.

Loan modification is a relatively complex and time-consuming process. Most borrowers do not have the wherewithal, time, or resolve to work through the process. As a result, many homeowners who qualify for loan modification do not complete the modification process.

In addition, loan servicers lack trained personnel and technology needed to execute loan modifications on a large scale. Loan service companies collect payments from borrowers, distribute the money to the appropriate parties, and handle the foreclosure process for lenders. The skills and technology required to modify a mortgage are much different (and more complex) than those needed to service a loan.

Moreover, the Treasury Department’s Home Affordable Modification Program Guidelines provide inadequate financial incentive to loan servicers to justify the costs associated with large-scale modifications. Likewise, mortgage modification provides inadequate financial incentive to lenders. In short, mortgage modification programs fail to achieve large-scale loan modifications because homeowners, loan servicers, and lenders each have valid reasons not to participate.

It appears the housing crisis will resolve itself the old-fashioned way. Delinquent borrowers will lose their houses through foreclosure. This will increase the housing inventory, which will cause housing prices to decline. At some point, prices will fall far enough for qualified borrowers to buy the houses.

[DuganS1]

Good post, especially about the time factor. It's much quicker to foreclosure the property, get the weak holder out, and get a stronger holder to move in. Plus via foreclosure the original homeowner can be relieved of their excessive debt. There is not debt prison here, so it's fast and easy. Foreclose the house, get rid of the debt, get a stronger holder to move into the house, and let the economy move on. Trying to modify loans takes a long time and is, as shown in the article, ineffective - as well as unfair IMO.

[KillTheMessenger]

The old fashioned way is fine. The sooner we get back to realistic home prices, the sooner the responsible people who actually can afford homes will buy them... as homes... not as speculative investments.

[OlderBudWeiser]

What ever happened to the "second mortgages" of the 60's and 70's?

[elsieach]

It isn't going to work. The defaulting homeowners know now that they can't afford homes, and they don't want their mortgage modified or their payment increased (for God's sake), they want out - whether that be ethical on their part or not is not the issue. The issue is that bad loans were given to people who couldn't afford them. Those people are completely destroyed, credit-wise, and no longer dream the American dream of home ownership. Now they dream the dream of being able to pay inflated rent and buy food.

The banks should be forced to foreclose QUICKLY instead of dragging their feet so the potential judgment against the defaulting owner grows larger and so that in the event the property is part of a homeowner association and assessments aren't being paid by the still un-foreclosed owner, the homeowner association's budget goes to crap and it's unable to maintain the property for the rest of the "good" owners. BANKS will now not lend on properties in homeowner associations that have too high a delinquency rate due to the number of foreclosures that the BANKS caused by the sale of the properties to unqualified owners, because, of course, the BANKS don't want to take on any additional risk from the hellhole they created.

Too big to fail is too big for us to hand-feed. Nationalize them, fire everyone at the top and replace them with honest Americans. It's my understanding there are several who need jobs.

[markinaz]

The banks have absolutely no incentive to do any of that first part of your post and I totally agree with the 2nd part.

[watchTVgetSTUPID]

Replace Geithner with an auto worker who is laid off. He will work for much less (UAW wage of $15 per hour for new auto worker employee) and he will insist corrupt bankers get their comuppins for destroying the economy. He will not tolerate phony books and will insist AIG not loot the federal treasury but go through the well established bankruptcy process.

[markinaz]

Great moniker, but I would submit that it's NETWORK TV that gets you stupid. Discovery, TLC, History channel and PBS are usually pretty informative.

[watchTVgetSTUPID]

Good distinction. Although PBS news hour deliberately avoided an honest rebuttal to the big push for NAFTA and WTO most favored Nation trading status for China. Also you did not see PBS news hour give Scott Ritter a good opportunity to explain how he knows the Bush administration is commited to conquer Iraq. Seems there are limits to what PBS news hour can reveal.

As long as people watch TV with a critical mind, they will not get stupid. However, the FOX viewers who let the talking heads fill them with lies and anger...they are the ones who watch TV and get stupid

[BBackSoon]

So if left alone 50% go back into Foreclosure, Modified with a 10% reduction and then 28% fall back into Foreclosure? Maybe in my simple terms, if they modify at say 15% or 20% reduction in payments most people would be able to keep their homes. And maybe that extra 5% or 10% could just be added to the end of the loan?

As someone that had to dig into my 401k a few months ago, I would take adding a few years to the length of my loan to get me thru this time, and it would look even better if you could later on re-modify the loan to allow for accelerated or larger payments once your financial situation would allow it.

I know I am not a financial person. Shoot it full of holes.