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December 8, 2008

Mortgage Modifications Not Working So Well

In the first half of this year, borrowers defaulted on modified mortgages at rates higher than almost every estimate. According to the Office of Comptroller of the Currency statistics released today, 36% of borrowers who had their loans modified in the first two quarters of 2008 re-defaulted after just 3 months. After six months, the redefault rate was roughly 56%. After eight months, 58% of borrowers re-defaulted. "The results were surprising, and not in a good way," OCC director Dugan said. — Clusterstock




Posted by Brownstoner at 1:26 PM | Comments (12)
Categories: Market

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Comments

actually, 58% redefaulting after 8 months doesnt seem like such a loss.

the program saves the homes of at least 42% of the at risk borrowers.

if we trimmed the foreclosure rate 42% one might call that a success.

i say track the derivatives and force some restructuring or let the investment fail. it will hurt everyone, but in the end we all looked the other way while building a house of cards.

it will also put the liquidity back in the market as the line will have been drawn in the sand and the investors will be itchy to risk some more.

Posted by: bkn4life at December 8, 2008 1:43 PM

Why is this surprising or even bad? Most people who end up in danger of default to begin with are clearly having problems of some sort and renegotiation won't help all of them.

I actually think having 42% of borrowers NOT re-default after 8 months is pretty good.

Posted by: northsloperenter at December 8, 2008 1:47 PM

Hey Brownstoner the Shark Jumping thang isn't working out. I suggest you go back to your old ways and leave the Mutant Asset Bubble stuff to me.

The What

Someday this war is gonna end...

Posted by: Return of The What at December 8, 2008 2:08 PM

And the Big 3 will be back for more money in 3 months as well.

Posted by: daveinbedstuy at December 8, 2008 2:12 PM

People who had their mortgages modified were already in some kind of danger of default. People who are making their payments on time aren't being offered this option. I would be more interested to know how long it is before these mortgages are considered to be "safe" again.

Posted by: BrooklynButler at December 8, 2008 2:33 PM

I agree with renter - a 42% success rate doesn't sound so bad seeing as these were presumably previously a 100% failure rate.

Posted by: dittoburg at December 8, 2008 2:35 PM

the mortgage mods are a farse - lender is just pushing back payment deadlines while interest continues to capitalize - same thing that a student lender does.

Posted by: BrooklynLove at December 8, 2008 2:46 PM

*** ALERT****

Tribune Files for Bankruptcy

http://dealbook.blogs.nytimes.com/2008/12/08/tribune-files-for-bankruptcy/?hp

The Tribune Company filed for bankruptcy protection in a federal court in Delaware on Monday, as the owner of The Los Angeles Times, The Chicago Tribune and the Chicago Cubs baseball team struggled to cope with rising debt and falling ad revenue.

In a court filing, Tribune said it had nearly $13 billion in debt, compared to $7.6 billion in assets. Most of that debt was taken on when Mr. Zell acquired the company — a deal he struck using mostly borrowed money. All of the now privately held company’s equity is owned by an employee stock-ownership plan.

Tribune has sought to ameliorate its woes by selling off assets like the Chicago Cubs, but the company still faces a looming debt crunch.

While Tribune must contend with hefty interest payments over the next year, its most pressing problem was a maintenance covenant on some of its debt that limits the company’s borrowings to no more than nine times earnings before interest, depreciation and amortization.

Even if the company continues to make interest payments, failure to maintain that level of debt means technical default — which does not always lead to a bankruptcy filing, though in Tribune it apparently did. Other newspaper publishers have halted making interest payments on their debt, but have yet to file.

Please Dave tell me that everything is OK. You and your ilk are going to get smoked in 2009 and I can't wait!!!

The What

Someday this war is gonna end...

Posted by: Return of The What at December 8, 2008 2:50 PM

"the mortgage mods are a farse "

That's about right. They use the modifications as a marketing tool but don't actually make any viable change from what I can tell. They do things like
a)push out the maturity date of the mortgage which gives a small monthly reduction in payments but makes the total amount paid over time much worse:
b)roll into a lower rate (but only where they can still make their spread); and
c) reduce payments where principal payments have been made but fix monthly payments were locked in.

Often they also charge for the modification by adding to the principal amount.

Of course its easy to say they should giving principal reductions or interest rate deductions without compensation, but if they did this they would be in liquidation themselves.

The problem is that they have no budget to make these sorts of changes. So they make changes that don't cost money...beter than nothing.

Posted by: Aussie at December 8, 2008 3:31 PM

The mortgage modifications would work well if you has a smart borrower to start with. Most people that bought homes lately have payed 300-400 times their value in 1990. People who bought these homes had no intention what so ever of living in these homes. Their only intention was that of finding another idiot who would pay even more than they did so they could pocket the profit. People that kicked elders and children out of their old neighborhoods so the could increase rents threefold, while they drank 3.00 dollar coffee at Starbucks everyday deserve no pity.

Posted by: hannible at December 8, 2008 4:24 PM

The bottom line is the assets are still overpriced. When mortgage payments come in line with what the home would rent for, then we have found some sort of sane equilibrium. I say let the house prices fall.

Posted by: Springs at December 8, 2008 10:51 PM

Bless your words Springs!. You really can't fix stupid as a famous commedian says. The price of over valued homes has to come down way down.

Posted by: hannible at December 9, 2008 8:24 AM

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