Nearly Half Of The Modified Loans Have Again Started To Default
Nearly half of the loans that had been modified during the first half of 2008 have again started to default, according to a federal regulator. This poses a question about the quality of these loan modifications.
About 53% of those who had their loans modified during the first quarter of 2008 and 51% of those who did so during the second quarter could not manage to be current on their monthly payments within this short span of time. John Dugan, U.S. Comptroller was speaking on this issue at a conference on housing.
The report in full will soon be released. It has surveyed 35 million mortgage loans amounting to $6 trillion. It calculates to 60% of all the primary mortgages in the country.
The main question here is whether these modifications have any long-term effect. Yet this is the key solution to the financial crisis. 1.35 million houses are in the foreclosure zone and those defaulting now are 6.99% according to Mortgage Bankers Association.
Hope Now Alliance has helped 1.7 million foreclosure victims.
The Comptroller of Currency is asking servicers to provide more details to analyze the matter and find out what went awry and why. Dugan is keen to know if the modification had been done to realistic levels or whether the borrowers were too much in debt to be able to surface. He explained, “These answers are important, because they have important ramifications for the foreclosure crisis and how policymakers should address loan modifications, as they surely will in the coming weeks and months.”
Other speakers at the conference also posed questions about the loan modifications noting that this was far from being effective. Many lenders in all probability tagged on the due payments with penalties at the end of the modification agreement.
Sheila Bair the chairperson of FDIC was also critical of the modifications that have been undertaken. She said, “The quality of the modifications are not what the should be.” Perhaps proper verification of income had not been taken.
In November she launched a plan to tackle the foreclosure crisis by introducing modification of loans. The monthly payment was not to be more than 31% of the income of the borrower. To do this, the rate of interest was brought down to 3% and the terms of the loan extended to 40 years. Her plan included deferment of principal without accruing interest at the end of the term.
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- Modifications Egging Re-Defaults Leading to Foreclosures
- Regulators Step Forward To Help Foreclosure Victims of Indymac
- Investors and Middlemen Deny They Are Stalling Foreclosure Relief Measures
