as reported by the United States Office of Thrift Supervision, within six months after modification:
- 24% of the mortgages that had monthly payments reduced by 20 percent or more were 60 or more days past due versus
- 54% of mortgages with monthly payments if no loan mod.
See the June 30, 2009 quarterly report.
This report went on to say, "Foreclosures in process increased. Foreclosures in process also increased during the quarter to 844,389, or about 2.5 percent of all serviced loans, as moratoriums on foreclosures expired during the first quarter. This increase represented a 22 percent jump from the previous quarter and a 73 percent rise from the first quarter of 2008."
So, despite an increasing number of loan mods offered, one in four of those borrowers still default within 2 months and we have a 73% jump in foreclosures compared to last year.
Does this sound to you like loan mods are working? I'm not convinced. Nor am I convinced that we have hit the bottom of the residential cycle yet due to all this inventory in the foreclosure pipeline.
Why aren't loan mods working? Human nature. If you have a mortgage of $500k on your house in San Jose, California and your house is now worth $400k, are you going to keep paying your new lower interest payment?
Loan mods only modify the interest, not the principal. Legislators should not modify the principals on these loans either because that would penalize the rest of the U.S. homeowners (over 90%) who pay their mortgages on time, borrowed what they could afford and should not be seeing their neighbor who put zero down and cashed out to buy a BMW get a lower principal on his or her mortgage.