Mortgage Modification Re-default Rates Too High

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According to a study published yesterday by the OCC, defaulting mortgages lucky enough to get modified are going back into default within six months 53 percent of the time. This is a shocking statistic to me as well as to the Comptroller of the Currency, John C. Dugan.

Mr. Dugan in the press release said,

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today.”

Yikes…these re-default rates are unbelievable!

How can folks be so cavalier with their “second chance”?

Mr. Dugan speculated,

“Is it because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers? Is it because consumers replaced lower mortgage payments with increased credit card debt? Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments? Or is it a combination of these and other factors?”

Maybe Mr. Dugan, it was because these so-called loan modifications were in reality only “repayment plans” and not a permenant restructuring of the loan at affordable levels?

Which is more believable…

The bank executed true modifications at affordable levels and these borrowers still didn’t pay…

Or…what banks call a “loan mod” really isn’t?

Regardless, one thing is sure: the current Administration will use these findings to stall any mortgage modifications in the future.

Hank Paulson and Ben Bernanke are clearly against helping the foreclosure victim and this report will be more “evidence” they were and are right to withhold assistance.

Let’s hope the Obama Administration will address this Main Street end of the foreclosure crisis with a comprehensive, mandatory, mortgage modification program that, at least, has a chance of helping those who realistically can afford their homes.

Good Luck!