Mortgage Re-Default Statistics After Loan Modification

By
Real Estate Broker/Owner with Broadpoint Properties Cal BRE #01324959

 

Short Sale ExpeditorSome folks are not interested in statistics. Personally, I am fascinated by the successes and failures of the HAMP and HAFA programs (the government’s loan modification and short sale alternative programs). I speak with so many people that ring me at the eleventh hour when their loan modification has been declined or when they have already paid someone thousands to help with the modification and are seeing the modification going nowhere fast.

Of course, everyone who is having trouble making ends meet probably wants to keep their home. Sadly, however, sometimes it is hard to make the mortgage payments—even after being approved for a loan modification.

On February 4, 2011, dsnews reviewed a Moody’s report on “the dynamics of re-defaults” in loan modifications. Here’s the skinny.

In this report, Moody’s calculated the six-month re-default rates on approximately 78,000 loans that were modified between early 2009 and mid-2010 by eight of the major loan servicers.

Here is the breakdown of each company’s modification re-default rate: 

  • Bank of America – 33%
  • Wells Fargo – 29%
  • American Home Mortgage – 26%
  • Ocwen – 24%
  • GMAC Mortgage – 23%
  • JPMorgan Chase – 22%
  • CitiMortgage – 20%
  • Litton Loan Servicing – 20% 

In plain English this means that 33% of those who obtained loan modifications through Bank of America have since re-defaulted on their loans. Eeeeeeek!

Moody’s also made note that there has been some improvement in the performance of modifications since servicers started aggressively reducing borrower payments in 2009. “The average six-month re-default rate on loans modified in the first half of 2010 improved to 25 percent from 31 percent for loans modified in 2009.” 

Additionally, Moody’s arrives at an interesting conclusion: “We have found that a loan that is modified and [then] reported as current is three times as likely to default over the ensuing twelve months as is a current loan that has not been modified.”

What will happen to these mortgages down the road is anyone’s guess. Perhaps they will result in foreclosure (more REO listings for you), deed-in-lieu, or even a short sale (another great listing opportunity). In a few years, we can all stand around the proverbial water cooler and chit chat about the results in between comments about Dancing with the Stars or Chrstina Aguilera’s next big snafu.

 

 

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Rainmaker
654,199
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

Wow, that's disappointing. But, for those who are in the larger category, for whom the modifications are working and are able to keep their homes, the program is a big success. I hope by the time M. Aguilera has another snafu we're back into a healthy market.  Oh, never mind that last sentence!

Feb 09, 2011 12:20 PM #1
Rainmaker
905,837
Jane Peters
Power Brokers Int'l - Los Angeles, CA
Connecting you to the L.A. real estate scene

That is surprising, 33% of B of A's loan mods result in default, or rather re-default.  Well, at least these people tried, right!

Feb 09, 2011 03:55 PM #2
Rainmaker
1,090,499
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

Melissa. The chance of a loan mod actually working is probably much lower then those stats show. I would guess the 66% that have worked haven't been around long enough. The issue of course is the lack of equity. They may get the payment down some but the fact is the folks are still upside down with their <equiity>. Reduce the principle to market value and the mod will work. But of course this ain't happening. At least not in the markets that need it the most. The lenders better off foreclosing or doing a short sale and taking the insurance.

Feb 09, 2011 04:24 PM #3
Rainmaker
1,107,109
Ginny Gorman
Phillips Post Road Realty ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Interesting Melissa, I thought they would be lower too but at least we're hearing stats on these defaults...

Feb 09, 2011 06:31 PM #4
Rainmaker
457,050
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
Destin FL Real Estate

Melissa - I read that, too, and am not surprised.  The surprising thing is why would the banks spend all the money on the mods when they are going to lose anyway.

Feb 09, 2011 08:16 PM #5
Rainmaker
516,704
Mary Douglas
United Country Ponderosa Realty - Red Feather Lakes, CO
REALTOR, Red Feather Lakes, Colorado

OK - I'll be the glass half full person, at least 70- 75% have been successful---so far. Melissa, I'm a big fan of keeping people in their homes if that's what the people want to do, unfortunately most of the stats about HAMP are just not impressive.

Feb 10, 2011 02:34 PM #7
Rainmaker
224,486
Jim Gilbert
Samson Properties - Manassas, VA
The Golden Homes Team

The purpose of HAMP and HAFA is to get votes. Same thing with the Community Redevelopment Act that started so much of this.

Feb 10, 2011 04:04 PM #8
Rainmaker
911,662
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

It really is amazing when you look at the stats. You would think some of these folks would realize even with the loan mod it won't work for them.

Feb 11, 2011 08:13 AM #9
Rainmaker
109,093
Mark Peek
Roseville Rocklin Real Estate - Keller Williams - Roseville, CA
Peek Real Estate Group - Roseville CA Real Estate

I fully expect the re-default rate to increase as prices decline further.

Feb 12, 2011 03:21 PM #10
Rainmaker
812,999
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

Once that contract is broken, people begin to think.  While once they would have done anything to remain in their homes, they begin to look at how upside down they are and the fact that the lender has added to the back end of their loan rather than reducing the principal.  Right now the banks completely have the upper hand, but people are getting fed up with it.  We will start to see the rise of aggressive foreclosure strategies as the anger  grows.  It is a fact that only 1.3% of the TARP money dedicated for mortgage modifications has been spent.  Our taxpayer dollars bailed out Wall Street, but the lenders don't feel any obligation to turn around and help out Main Street.

Feb 15, 2011 08:53 PM #11
Rainmaker
387,489
Kevin Kueneke
Carlsbad CA Mortgage Banker, Mann Mortgage - Encinitas, CA
San Diego Mortgage Banker

Hi Melissa - I had heard that the post-loan mod default rate was over 50%, but 1 out 3 is still pretty high.  Once someone stops paying their bills, whether it be a mortgage or a credit card, it is hard to get back on track regardless of how low the modified payments may be.  Thanks for the information.

Feb 20, 2011 12:01 AM #12
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Melissa Zavala

Broker, Escondido Real Estate, San Diego County
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