By Moe Bedard
Loan modifications are one of the few instruments borrowers can rely on to save their homes from foreclosure. And while loan modifications have helped a great number of people, it seems banks that offered loan modifications in 2008 failed to seriously improve the lives of borrowers. What does this all mean? To me it means that banks are going to have to come around to the realization that when the economy loses 600,000 jobs a month they’re going to have to seriously consider dropping modified payments substantially further during the loan modification process to avoid even more foreclosures in 2009 and beyond.
The Los Angeles Times ran an article today reviewing the Office of the Comptroller of the Currency and the Office of Thrift Supervision’s report on loan modifications in 2008. According to the LA Times:
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.
While the report indicates pretty depressing figures for 2008 I am still positive about the future of loan modifications in America. When banks continue to lose money through re-defaults after a loan modification they’ll come to understand, I hope, that reducing payments more than 10% of the previous payment amount will result in the end of widespread defaults in America.
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This is what has happened to us. Our modification we are paying $300 more a month than our actual loan payment was. Go figure. I am just scared that countrywide will just pass us by on any of the new programs out there to help us reduce the payment so we can keep our house. any help?
Yeah…help us out? Right….Ours went from 1100.00 to 2000.00 Ok , we were having problems paying the 1100.00 so they figured that 2000.00 would not be a problem!!!!!!! So needless to say we will lose our because of this.