Loan Modification Statistics from the Office of the Comptroller of the Currency

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The link above takes you to News Release number NR 2008-142 issued by the Office of the Comptroller of the Currency of the United States.
 
occ_emblem_footerThe Office of the Comptroller of the Currency was created by Congress to charter national banks, to oversee a nationwide system of banking institutions, and to assure that national banks are safe and sound, competitive and profitable, and capable of serving the banking needs of their customers in the best possible manner.  OCC press releases and other information are available at http://www.occ.gov. 
To receive OCC press releases and issuances by email, subscribe at http://www.occ.gov/listserv.htm.

Now that we know who and what this government agency is let’s take a look at what this report has to say concerning loan modifications in this report released December 8, 2008.

“…new data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months.”

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today.

Over half of the loan modifications fell delinquent after only six months.  What an alarming figure that is.  In fact, after 8 months nearly 58% fell deqlinquent again and were all probably facing foreclosure.

As you read the actual release, you will see that Comptroller Dugan also questions the reasons why. 

A key question, Mr. Dugan said, is why is the number of re-defaults so high? “Is it because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers? Is it because consumers replaced lower mortgage payments with increased credit card debt? Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments? Or is it a combination of these and other factors?”

I believe it is a combination of all of the above and more.  Please understand that I do not hae statistics to bear out my beliefs but have put together my opinion from many months of research in various sources, blogs and comments.  In addition, I base my assumptions – and they are assumptions – on personal experience working on loan modificaitons and on the experiences of many that I have spoken with. 

The stories all seem to be the same.  They get a run around, repeated requests for the same information and lack of or no communication once a homeowner initiates the process.

But in those conversations I have, the comments and emails I read and most importantly, the actual modification documents I read there is another common thread.  The terms and conditions more often then not are structured for certain default.

Let’s examine just one such condition in a modification I reviewed recently.  It stated that there was no grace period for payment and that payments were due and to be posted by the servicer on the 1st day of each month.  It furhter went on to say that if a default occured the borrower waived their right of notification of foreclosure.

Payment grace periods have been a constant in the credit industry for as long as I can remember dating back to the 1960’s when I first entered the field.  Is it reasonable to expect someone, already strapped for cash to be that punctual?  I am not saying allow consistent late payments but at least a seven day window for those – many Americans – living from paycheck to paycheck.  Many get paid on the last day of the month so payment by the next day and posted by the serivicer is not possible.

A modification should mean some leniecy not more rigidity to set one up for failure.

Further, in many modifications I have read, payments actually go up not down.  How absurd.  If one is having trouble with the current payment and asking for relief – especially those with higher then standard rates – how can they pay more in a modification?

One other issue I have with some modifications is that they are too short term in nature.  I recently had someone come to me whose time was just about up – 24 months – find themselves unemployed facing a rate and payment increase on their modification.  As the economy worsens – and it is – relief is needed for longer terms or with the ability to extend the terms.  Currently most modifications do not allow for any additional forebearance.

What appears to be happening, is short term relief for some, decreased losses and increased cash flow for serivicers and an escallation of the same problem down the road.  If 58% of modifications will fail in 8 months, add that figure to the ever increasing foreclosure rate and you have a new and ongoing disaster.

Which brings me to the last point.  With ever increasing foreclosures, there will be ever increasing modifications and ever increasing defaults on modifications.  A never ending circle that will never allow our economy or mainly our people to recover.  We must stem the tide of foreclosures in addition to making honest, determined and viable workouts with homeowners and not offer just “mere commercial puffery” as an attorney for Countrywide said their modifications were.  Note:  CW is not the only one not making a real ernest effort to modify or workout loans.  Many of the other big players are not either.  Just one case in point on a modification I worked on when I was told that the borrower had to bring his account current before any discussions could be had on a modification.  Obviously, had this been possible, I told the employee, we would not need a modification at all.

Mr. Dugan commented,

“We believe the reports include the most accurate and reliable data on mortgage performance that is available today,” Mr. Dugan said. “And in addition to providing more clarity about mortgage performance generally, the data have proven to be exceptionally valuable for supervisory purposes.”

Hopefully, this new good data will serve the purpose of allowing a more positive solution to this problem.

The Comptroller’s complete remarks are available on the OCC’s Web site.

   
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