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February 5, 2009

Loan Modifications Not Working Out So Well

A recent study by the Office of the Comptroller of the Currency found that more than 50 percent of troubled homeowners had missed at least one payment six months after a lender modified their loan, and lenders and other researchers report similar default rates on modified mortgages...As the economy continues to slow, layoffs mount and housing prices drop more, making it even harder for homeowners to sell their homes to pay off their loans, the default rate is expected to rise. "As the economy worsens, we're going to see defaults and re-defaults go up," said FDIC Chairman Sheila C. Bair. "That's just going to happen. People need to understand that." — Washington Post

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What about de-re-defaults, where things get better.

Posted by: dittoburg at February 5, 2009 9:03 AM

The Three C's of Lending: Collateral, Character and Capacity. Character usually doesn't change from one loan to the next once someone has defaulted.

Posted by: daveinbedstuy at February 5, 2009 9:05 AM

seriously question, maybe wrong thread, im not totally sure.. why are homeowners getting bailed out for missing payments on their mortgages but renters don't get any bailout if they miss their rent? i know some states have one time only programs where if you miss your rent they will help you out. btw, i have never not paid my rent, rent always comes first no matter what. like MIA sings, you gotta get a j-o-b if you wanna be with me, cuz there's nothin goin on but the rent!

Posted by: PitbullNYC at February 5, 2009 9:38 AM

It's all too depressing. The government has for too long enacted policies to allow Americans to live beyond their means and at the same time accomodate the interests of corporate America. Greenspan pushed interest rates to practicaly nil in 02 and contantly bailed out the market at times of trouble (the Greenspan put); Bush told Americans to go shopping after 9/11; Congress passed bankruptcy reform a couple years back which was literally written by the credit card companies. Just because Hoover refused to do enough to end the Great Depression does not mean the solution to our current crisis is to spend even more money than we don't have. When we entered into the Great Depression America was a creditor not a debtor nation and there was no account defecit. Now, since Reagan, we contintually push off our financial responsibilities to future generations. We continually cut taxes but increase spending relying on the largess of foreigners to lend us more and more money.

Next year, according to the CBO (which is non-partisan), the deficit is going to be 2 trillion dollars and that does not include the two "off budget" items - the underfunded social security and medicare programs which brings the annual defecit to $4 trillion.

Sheila Blair has done a great deal of good carping on how government needs to do more for homeowners. Unfortunately, what she has accomplished has been primarily to benefit her own career. Why is it so bad to tell people to walk away from homes they cannot afford? Force the lenders who gave the loans to swallow the loss and let people make a new start, re-establish their credit and then they can shop for a new home that will be considerably cheaper than their last one. God forbid they become renters, it's not the end of the world. What the government is attempting to do is forestall the day of reckoning. We got into this mess by going too far into debt and I have yet to read a rational explanation of why taking on more debt is the solution to the problem.

Posted by: Brooklynnative at February 5, 2009 10:05 AM

Well put, Brooklynnative.

The reason for all of these bailouts ultimately seems to be that were everyone who deserves to be foreclosed on actually foreclosed on most if not all of major US financial institutions would be bankrupt.

It really has nothing to do with saving homeowners. That's just political cover. It has everything to do with saving the banks.

While individual banks can go bankrupt with minimal disruption to society, all of them going bankrupt would be similar to the water company going out of business or every supermarket in the city closing down at once. At least, this is what our decision makers seem to believe.

As Taleb and others have been saying, Banks are Utilities and should be regulated and controlled as such (incl. profit limitations) because society must bail them out when they fail.

As for borrowing our way out of this mess... I have no idea if we can do it, but we sure as hell look like we are going to try.

Posted by: northsloperenter at February 5, 2009 11:01 AM

As to the general issue, I've said this before: If loan modification has a 50% success rate than that is really really really good.

Anyone who says otherwise isn't thinking clearly.

Scenario 1: 100 homeowners are in trouble. None of them receive help. Let's say 80 get foreclosed on and 20 manage to get their finances in order without help.

Scenario 2: 100 homeowners are in trouble. They get help. 50 get foreclosed on anyway.

That's a 37.5% reduction in foreclosures. Sounds good to me.

Posted by: northsloperenter at February 5, 2009 11:05 AM

Many people who got loan modifications ended up with the same or higher mortgage payments. Government programs like the H4H/HOPE for Homeowners loans, are a bust as well. The program is intended for people who have no previous late payments or otherwise bad credit whose mortgage interest rates have reset or are to reset making payments unaffordable. These homeowners could apply for government backed mortgages at about 5-6% fixed interest for 30-40 years. Needless to say, there aren't too many homeowners looking for help who are creditworthy enough to fit the criteria. The other thing with the H4H loans is that the homeowner would be in an "equity and appreciation sharing" contract with the government.

My job hired an additional housing counselor last month to deal with the influx of people seeking help. Interestingly, enough many of the people seeking help are renters. We refer the renters for one-shot deals and other such programs. Many people coming in - both former homeowners who lost their homes and renters who lost their apartments complain that they can't get another apartment because of their poor credit.

Posted by: Just Wondering at February 5, 2009 11:19 AM

The problem is volume. With too many foreclosures, the banks can't sell them -- even at a reasonable loss. Then they incur the taxes, repairs (yeah right), etc. What happens is your neighbor (the house owned by the bank) is either bought up by some speculator who rents to just about anyone or deteriorates. Then you, the neighbor, are upset because too many on your block are vacant and your house ain't worth squat. Of course, this doesn't really happen in Brownstone Brooklyn, so who cares on Brownstoner. I live in a Historical section on the Hudson and we don't want to see anyone foreclose. But close by, you can buy any number of Italianate houses for popcorn. Feel fortunate you are protected (for now). But if the tides changed, I bet more of you would wish the banks worked something out with the lender.

Posted by: Iknow at February 5, 2009 12:35 PM

"Force the lenders who gave the loans to swallow the loss and let people make a new start, re-establish their credit and then they can shop for a new home that will be considerably cheaper than their last one."

OK, so what happens if the former homeowner who "walks away" from one place, is the "forgiven," re-establishes their credit, buys a new home with the best of intentions, and then DEFAULTS on the new mortgage? In my opinion, both the banks AND the defaulting homeowners need to share responsibility. The government and the banks alone are not responsible for our culture of credit. At some point, people need to take responsibility for their own actions.

Posted by: East New York at February 5, 2009 12:36 PM

"why are homeowners getting bailed out for missing payments on their mortgages"

'Cheaper to keep her' concept. Sustained debt slavery more promising than taking a sure loss on dumping an 'underwater' property on a grim market. Ultimately, it's a lender bailout.

***Bid half off peak comps***

Posted by: Brownstones Half Off at February 5, 2009 12:37 PM

Again. No one has really gotten bailed-out. Most of my clients are seeking help because one or both people who entered into the morgtgage agreement lost their jobs. Many of them were credit-worthy enough to have gotten decent loans but due to ignorance, language barriers and a myriad of other reasons many were put into subprime loans anyway. Even those who diligently dotted their i's and crossed their t's and found decent loans at decent interest rates can't pay their mortagages without a job. Modifications aren't helping because once again the banks are trying to bilk as much as they can out of the situation instead of offering people loans that can be sustained.

It would serve every bank in the country right if they were to go out of business. Let the bankers lose their homes because of unemployment so that they can see how it feels to face homelessness! Okay maybe not. Just venting.

Posted by: Just Wondering at February 5, 2009 1:04 PM

"No one has really gotten bailed-out."

Citibank, Bank of America, JP Morgan, and Wells Fargo are all getting really bailed out.

Posted by: northsloperenter at February 5, 2009 1:37 PM

"Citibank, Bank of America, JP Morgan, and Wells Fargo are all getting really bailed out."

Citibank, Bank of America, JP Morgan, and Wells Fargo are all really Insolvent. I say around May TSHTF real hard! At this point is all beyond repair, our Banking system is Kaput!

The What

Someday this war is gonna end...

Posted by: Return of The What at February 5, 2009 2:27 PM

"Citibank, Bank of America, JP Morgan, and Wells Fargo are all getting really bailed out."

Citibank, Bank of America, JP Morgan, and Wells Fargo are all really Insolvent. I say around May TSHTF real hard! At this point is all beyond repair, our Banking system is Kaput!

The What

Someday this war is gonna end...

Posted by: Return of The What at February 5, 2009 2:27 PM

You got that right northslope and what.

Posted by: Just Wondering at February 5, 2009 2:52 PM

Wells Fargo is actually ok.

Posted by: dittoburg at February 5, 2009 3:15 PM

C is looking attractive and, (dave, lechacal?), CHEAP (that's right, I said it). But The What has too much credibility so I can't ignore him. Maaaaannnnn, if they don't file Chapter 11...

***Bid half off peak comps***

Posted by: Brownstones Half Off at February 5, 2009 5:46 PM

They bailed out wall street but kicked homeowners to the curb with no place to live.

I too am trapped in an interest only loan with America's Servicing Company who obstinately won't even send me the paperwork. If you are behind on payments they foreclose even IF they agree to a loan modification. They are unprofessional and unscrupulous. The government is doing NOTHING BUT....

They bailed out wall street and kicked homeowners to the curb with no place to live. They are taxing the middle class to death. We have been abandoned.

It is obvious this administration will do ANYTHING to help big business but will not help hard working Americans who want to stay in their homes and make their payments. For one thing the 31% of gross rule is absurd. For those in trouble, especially singles, their extravagant payments may already be at 31%. This is the case for me. BUT MY PAYMENT IS 55% OF MY NET.

The servicing companies get kickbacks for loan mods. The banks get bailed out. The TARP benefited everyone but the homeowner. President Obama has let us down and now he wants us to pay for healthcare.I'm not saying it's a good idea but with Americans homeless how can we consider a new tax boondoggle? Obama could have used TARP funds to bailout homeowners but stiff armed us away with complicated rules and regulations that no one can qualify for.

Posted by: obamaloanmod at August 8, 2009 12:34 PM

« Thursday Links Stribling Closes at 1BBP, Optimistic About Spring »

February 5, 2009

Loan Modifications Not Working Out So Well

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