Mortgage Re-Defaults Soar Despite Loan Modification Push and $300 Billion Fed ‘Hope for Homeowners’ Plan
As the economy, troubled job markets and the credit crunch push a growing number of homeowners towards foreclosure, pressure has mounted for policymakers to implement home loan modification programs and policies to curb the foreclosure epidemic’s spread. So far, top-level efforts to help homeowners avoid foreclosure appear to be failing, but bad news for homeowners and banks may trigger a short sale renaissance for real estate investors in the New Year.
Is “Hope for Homeowners” Hopeless?
In July, Congress passed a $300 billion Hope for Homeowners program which was supposed to help an estimated 300,000 homeowners avoid foreclosure when it took effect in October. Fortune reports that only 321 applications to the “Hope for Homeowners” program have been completed. And the Department of Housing and Urban Development says that the costly program has so far produced zero loan workouts. Some say that the heavy stakes for banks has crippled the plan.
Loan Modifications Lead Homeowners to Speedy Re-Defaults
Although a lot of folks are saying that reworking mortgage terms is the silver bullet in stemming the foreclosure tide, but prevailing evidence to the contrary shoots that idea down with a vengeance. If loan modifications are anything in today’s rough and tumble real estate markets, they’re a boon to pre-foreclosure and short sale investing.
U.S. Currency Comptroller John Dugan announced in December some interesting data from the latest quarterly Mortgage Metrics report from the U.S. Office of Thrift Supervision which tracks mortgages and modifications for Nearly 35 million loans worth more than $6 trillion, or about 60 percent of all first-lien mortgages including prime, Alt-A, and subprime mortgages, and using standardized definitions for loan modifications.
Here are some remarkable data from the U.S. Office of Thrift Supervision’s 2008 Mortgage Metrics reports:
- More than half of the mortgages that were modified in Q1 2008 again became delinquent within six months.
- Three months after individual loan modifications, nearly 40 percent of the borrowers’ mortgages were more than 30 days past due.
- Within six months of modification, the re-default rate hit 53 percent.
Eight months following mortgage modification, the number of re-defaults rose to nearly 60 percent.
Policymakers Continue to Target Foreclosure Epidemic in 2009
State and federal lawmakers — and other officials convening in the New Year are gearing up to take action to slow the foreclosure process. These efforts, combined with a heightened sense of cooperation from banks who’ve been hard-hit in the economic crisis will shine a new light on pre-foreclosure and short sale deals as we move into the new year.
Massive Profit Potential for Short Sale Investors
Amid so much shifting activity in other real estate market segments in 2008, popular investor focus strayed briefly from pre-foreclosure and short sale deals. But with the current national trend towards slowing and perhaps suspending foreclosures, all levels of pre-foreclosure and short sale deals are likely to generate millions of dollars for savvy real estate entrepreneurs in 2009.
Don’t Be a Sucker: Get the Facts Before you Invest
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Tags: 2009 real estate investing trends, foreclosure news, foreclosure rate, gary boomershine, home loan modification, hope for homeowners, loan modification, loan workouts, mortgage crisis, mortgage default, mortgage statistics, pre-foreclosure investing, real estate investing, real estate marketing, short sale investing
January 6th, 2009 at 9:08 am
I am a Mortgage Lender and on the Hope for Homeowners list of Approved lenders. The reason the banks are unwilling to take losses is because they guaranteed the principle balances to their investors through credit derivitives which is an insurance the investor purchased. (Aig is the largest seller of this product) so the banks would have to take the losses and thus go out of business. The investors have no incentive to take losses that banks guaranteed. Thus the Tarp program was spent on making banks more stable. FHA didn’t consider this along with law makers when designing the program, which is why it’s a massive failure. Hopefully Obama will legislate mandatory participation with banks who took Tarp money.
On the re defaults of current modifications this is what the banks want you to believe that modification won’t work, however what they don’t tell you is that their modification departments are collection agents first, they want you to get caught up on you payments within 4 months so if you are behind 2 Mortgage payments of $2000 a month, thats $4,000 they want back asap and they spread this over your next 4 payments so your new payment is $3,000 a month over the next 4 months so you can get caught up. This is the worst thing the banks could do and they wonder why the customer can’t keep up with their payments. Hey Geniuses if the customer has trouble making his current payment, how is he or she going to keep up with your new payment which is 50% higher.
Banks are not thinking past the next 6 months, they are not structuring modifications for the next 3-5 years, in most cases they are not lowering the interest rate and the biggest reason is a customer will always walk away from an asset that is $100k underwater and sinking deeper every month. Even Suze Orman says when your underwater to this extent give the house back and wait the 4 years and rent. Banks are going to have to do a lot more to save themselves and housing at the same time.
January 6th, 2009 at 10:31 am
Thanks Robert, for sharing your “in-the-trenches” perspective with the rest of us. Apparently, it takes a lot of “geniuses” to run this circus.