What’s going on with all of those distressed mortgages out there? Apparently not so much. According to a recent report from state attorney generals and bank supervisors from across the country more than 60% of homeowners with seriously delinquent loans continue to not be involved with any form of loss mitigation with their servicer. What, everyone isn’t just knocking down the bank doors to enjoy six months of trial loan mod hell?
We found that these other numbers quoted by the State Foreclosure Prevention Working Group to be interesting as they mention that loans modified in 2009 are 40 to 50% less likely to be seriously delinquent six months after modification than loans modified at the same time in 2008.
This same group of state regulators and chief attorneys also found that recent modifications that significantly reduce the principal balance of the loan maintain a lower rate of redefault compared to loan modifications overall. No kidding. Some would think that the logical thing to do would be to offer more loan mods that include principal reduction. Alas, the banks either through their greed or just not being able to make financial sense of a loan mod versus a shot sale versus a foreclosure continue to move like honey in terms of principal reduction. Where is all the short pay-re-fi action?
We’re surprised to see that the group’s study shows that only one in five modifications reduce the loan principal. We haven’t seen any here in the Bay Area but we could be wrong. Instead, in terms of the loan mods, about 70% actually increase the loan amount by adding servicing charges and late payments to the loan balance. Loan mods with increased payments? Say it ain’t so.
That info just adds a little more fuel to the fire, that the whole loan mod thing may be a bit trumped up and just a good amount of PR spin.