Mortgage Re-Defaults Soar Despite Loan Modification Push and $300 Billion Fed ‘Hope for Homeowners’ Plan
Monday, January 5th, 2009As 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.
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