Is it fraud, or is it the economy? Whatever it is, more borrowers are defaulting, many without making a single payment. Notice however, that the problem does not seem to be a lack of modified mortgages:
Troubled borrowers continue to default at high rates even on home loans that have been modified by lenders, according to a government report issued today. The report also found that an increasing number of borrowers default on their loans before making a single payment.
The report by the Office of Thrift Supervision and the Comptroller of the Currency, which regulate mortgage lenders, focuses on the effectiveness of industry efforts to help troubled borrowers. It finds that a growing number of homeowners are falling behind on their payments and that borrowers with prime mortgages, which traditionally are considered less risky, are a growing part of the problem.
"It’s higher than we have ever seen it, historically, and the fact that it is still climbing is something we are keeping an eye on," said John C. Dugan, comptroller of the currency. The report covers two-thirds of the mortgage market.
Modifications do not appear to be helping most of the recipients:
Despite increasing government and industry efforts, many borrowers are quickly falling behind on their payments after receiving a modified loan, which can include lowering their interest rate or extending the length of their loans. Of the loans modified early last year, for example, about 35 percent had missed at least three payments nine months after their loan was modified. About 57 percent had missed at least one payment.
Most borrowers, about 58 percent, received loan modifications that did not lower their monthly payments. The more a borrower’s payment is lowered, the more likely he or she is to stay current on a loan, the report found.
And those borrowers who have never made a payment….
The report also found that an increasing number of homeowners, about 1.44 percent during the fourth quarter of 2008, are falling behind before making a single payment on their mortgages. That is up from 1.23 percent in the first quarter.
The increase could be a sign of fraud or that the loans weren’t reviewed properly at the outset, Dugan said. But it could also reflect the worsening economy, he said. "Circumstances have changed more quickly for some borrowers and they have not been able to make payments they thought they could," said Dugan.
While it is possible that there are people buying homes days before they are laid off, my guess is that the increase in borrowers defaulting without a payment is due to fraud. Certainly the FHA is reporting that they are concerned by the growing level of fraud.
Foreclosure prevention plans will not help the fraudsters, nor will they help the unemployed. It is no wonder that the "rescue" plans are not succeeding. As long as unemployment is rising and fraud is not controlled, no foreclosure prevention program will successfully prevent foreclosures.
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“Most borrowers, about 58 percent, received loan modifications that did not lower their monthly payments.” I don’t quite understand? Why did they do a modification if it didn’t lower their paymnets?
a small part of the 4th qtr numbers (people who never made an intial payment) could be because everyone was hearing about all of this help coming, but when they called the lender they were literally told that you had to be a couple months behind. so you just don’t pay even the first bill and you may qualify for help.
i still can’t get past the modifications that didn’t lower the payment??? someone please explain.
yes igor…apparently i am clueless
AZSaluki-
I’m not sure that this is what they are doing, but I know that one of the things that mortgage lenders have traditionally done is either forgive late payments, or tack them on to your existing balance.
If your financial problems are short-term, it’s a modification that can be a blessing. For long-term problems, it doesn’t help much.
And how long do you-all think it will be before the banksters start writing down the amounts owed? Methinks that this will work better than gimmicks like lowering the interest rate and extending the life of the loan.
Like Igor, stories this make me feel dejected.
What the banks are doing (even through programs like “Hope Now”) are largely forebearances. As Twist says, they just forgive the delinquency, and tack all the balances back onto the mortgage.
It’s basically a vast game of chicken with the economy. They are betting that either things will get better in terms of borrowers’ earning power (not likely) or perhaps more importantly, that the government will shovel lots of money into the banks in the form of permanent bailouts (the Fed “laundering” programs and TARP do not qualify.)
What we need are principal reductions, and banks/investors to take losses. But they are well aware that would sink them.
Twist, it does appear this has very little to do with foreclosure prevention. The broader economy is where the problem is. Our fabulous government is just throwing away our tax dollars. I think a lot of people are picking up on the cash is king philosophy. Hoard money just in case. The government needs to take a recess and let Mother Nature do her thing. Of course if they have to keep taking away our dollars at least spend some on some more prisons for the fraudsters. Oh, and bring back chain gangs for em