Are banks actually doing loan modifications? Hardly. Moody’s Investors Service just reported that servicers have worked through most of their delinquencies and modifications continue to decline. Last year sevicers quickly ditched many of the loan mod strategy for loss mitigation alternatives like short sales and now quickly gaining momentum the deed-in- lieu’s
Moody’s calculated a decline in “Total Cure and Cash Flowing,” measuring successful loss mitigation efforts in the third quarter. We actually think the term “cure” offers some deeper thought. These bank “cures” normally lead to a bank getting two things from the homeowner 1- money 2- information. Only a small percentage of homeowners get a “cure” for their ailments.
Are we surprised that Citi, GMAC, and Chase experienced the greatest decreases in cures?
For subprime loans, Ocwen posted the highest cure rate – 44 percent. The high cure rate at Ocwen is linked to high numbers of modifications relative to other banks.
Moody’s notes that the high cure rate includes “a significant number of re-modifications,” which occur when an initial modification fails. These re-modifications may be one of the most under-publicized occurrences. Many homeowners who qualified for initial loan mods ended up filling the banks coffers while not solving their own issues. It’s just a way for the banks to garner a few additional payments from an owner that shouldn’t be in loan mod in the first place.
Ocwen saw re-defaults among 54.5 percent of its subprime modifications, the highest rate among the banks. Bank of America came in a close second with a 50.5 percent re-default rate on modifications of subprime loans.
B of A also kept at the top of the pack as it posted the highest rate of re-defaults of ALT-A loans (42.3 percent) and the second-highest re-default rate for jumbo loans (35 percent).
Consistent with its high re-default rate, Ocwen ranked highest for re-modifications of subprime loans. Ocwen’s re-modification rate for the third quarter stood at an astounding 24.8 percent. Wells had the second-highest re-modification rate at 6.8 percent.
Consider that the high re-default and re-modification rates at Ocwen may be caused by: 1- Ocwen’s process in evaluating borrowers for a modification, 2- Ocwen simply wants to extract a little more of the homeowners’ money before they re-default.