Re-default nation

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The big question looming over the push to rewrite the home loans of people struggling to make payments is whether or not such mortgage modifications keep folks in their houses for the long term. As I’ve mentioned before, there’s a danger that loan modifications, at least the way they’re currently done, don’t solve the problem, just delay it.

This morning Comptroller of the Currency John Dugan gave a speech and shared some grim data: more than half of loans modified in the first quarter of 2008 fell 30 days delinquent within six months. Here’s the graph he put up:


The data come from the largest national banks and thrifts and cover 35 million loans worth more than $6.1 trillion, or 60% of all first mortgages in the U.S.

Dugan called the results, part of his agency’s new Mortgage Metrics report, “somewhat surprising, and not in a good way.” He pointed out that a person could argue that 60-day delinquencies are a better indication of future foreclosure, but those figures aren’t so good either—after six months, 35% of people were 60 or more days behind on their payments.

These are great numbers to have since historically we haven’t—and problem solving often starts with data collection. Unfortunately, we’re still not quite at the point of knowing what to make of it. As Dugan said this morning:

The question is, why is the number of re-defaults so high?  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? We don’t know the answers yet, but these are the types of questions that we have begun asking our servicers in detail.

Godspeed on that.