In a recent article written by Vikas Bajaj, he uncovers the concerning issue that distressed homeowners whose mortgage loan were recently modified are again delinquent on home loan payments, a top banking regulator said on Monday, raising questions about whether policy makers and mortgage lenders can successfully help them stay in their homes.
Data from the OCC indicated that more than half of mortgage loans modified during the first three months of the year were delinquent by thirty days just six months after the terms of the home loans were changed, John C. Dugan, the comptroller of the currency, said at a conference in Washington. After eight months, 58% were delinquent again. The rate at which borrowers fall behind payments again — called the re-default rate — appears to be much higher than what previous studies have found. In October, a Credit Suisse study showed that about 30% of loans modified at the end of last year were delinquent by sixty days within eight months of the change.
Mr. Dugan said it was unclear why the default rates were so high after modifications made by the 14 banks that provided data to his office. He acknowledged that “we have to be careful as we look at this data.” One explanation for the high default rate might be that banks were not significantly changing the terms of the loans they modified.
Analysts at Credit Suisse have found that modifications that do not lower borrowers’ monthly payments were more than two times as likely to be late again even after a loan modification was approved that lowered the mortgage payments. Banks like Chase, Citigroup and Bank of America have only recently put more emphasis on lowering monthly payments.
Some loans may also be so poorly underwritten that no mortgage note modification could help the borrowers stay in homes that they can no longer afford, Mr. Dugan said. That would confirm other studies that show homeowners who become delinquent are much more likely to lose their homes today than in the past. The Mortgage Bankers Association said last week that 30% of homeowners who miss one payment end up in foreclosure a few months later. Historically, only 12 % to 15 % fell that far behind and most borrowers were able to catch up, sell their home or strike a better deal with their lender. In California, however, 75% of homeowners who miss one payment end up in foreclosure; in Florida, 65% who miss a payment do. A sharp drop in home prices has made it much harder for homeowners to sell their properties for as much as they owe and rising unemployment is putting more borrowers in financial distress.