Ken’s Take: Wasn’t a fan of the rush to modify deadbeats’ loans to “keep then in their homes” … pointed out several times that most of these folks made no downpayment and never built any equity in the homes. They aren’t “owners”, they’re simply “occupants”. No surprise that the modification program had little impact.
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Excerpted from WSJ: “Foregone Foreclosures”, MAY 27, 2009
A central tenet of Washington economic policy for the past three years has been that the key to ending the recession is stopping mortgage foreclosures, whatever the cost.
Well, a new study shows that … mortgages are continuing to sour at a rate nearly as fast as they can be modified.
Fitch Ratings looked at mortgages bundled into securities between 2005 and 2007 and managed by some 30 mortgage companies. Fitch found that a conservative projection was that between 65% and 75% of modified subprime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes.
Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months.
The reasons for the high redefault rate aren’t surprising. Many of the borrowers never could afford these homes in the first place. And, and as home prices continue to fall in some markets, borrowers remain underwater and many of them simply walk away from the home and thus redefault.
This study has to come as a blow to the Federal Deposit Insurance Corporation, which has invested a great deal of political capital in the modification thesis.
On the evidence so far, the mortgage modification fervor has been a giant political exercise with little impact on housing prices.
http://online.wsj.com/article/SB124338503008056785.html#printMode
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