By:Dennis Norman
The Office of the Comptroller of the Currency and the Office of Thrift Supervision issed a report on mortgage performance which showed an increase in delinquencies,foreclosures in process,and other actions leading to home forfeiture but offered a little ray of light with a drop in “newly initiated”foreclosures by 2.6% from the second quarter to third quarter of 2008.
The report shows banks and thrifts are definitely working with borrowers trying to keep them in their homes as the number of loans that were modified to try to help the borrower rose to 133,000 loans,a 16% increase from 2nd quarter 2008. Unfortunately it does not appear the modifications are working,not even in the short term as the report shows that of loans that were 30 or more days delinquent and were modified in the 1st quarter of 2008 37% of them were in default again after 3 months and 55% after six months. Clearly the modifications have only been acting as a band aid for the majority of the borrowers and not a long term solution as was intended.
Comptroller of the Currency,John C. Dugan,said “One very troubling point is that,whether measured using 30-day or 60-day delinquencies,re-default rates increased each month and showed no signs of leveling off after six months and even eight months”. Mr. Dugan goes on to say “this trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable.”
I couldn’t agree with Mr. Dugan more. Clearly the modifications are not working and personally I don’t see a benefit to a homeowner facing foreclosure to get a band aid fix that does nothing more than prolong the agony and end up facing foreclosure again just a couple of months later. This appears to be happening with way too much frequency.
I don’t possess the Harvard Law Degree that Mr. Dugan has,nor do I have the experience in finance and banking that he does but for what it’s worth I’ve spent almost 3 decades in the trenches in real estate and in my career have dealt with and known many people facing foreclosure or other financial troubles that put their homes in jeopardy. Heck,in the past year,my life as a residential real estate developer and speculator forced me to face some major financial struggles as well so I have some first hand experience. I was fortunate in that I did not face foreclosure on my home but my wife and I made the smart decision to sell our “McMansion”and move into a nice,much more affordable,family home. I also have many friends and business acquaintances I know doing the same thing,I also know some folks that have chosen to sell their home and rent something for the time being.
This leads me to my point…to really help people that are facing losing their homes I think the first thing that needs to happen is the homeowner needs to take a hard,honest look at their situation and the lenders need to look at the underlying problem. If the homeowner is having problems as a result of a temporary interruption in income or a single unexpected major expense and now,or in the near future they will be back in a position where they can truly afford their home then it makes sense to modify the loan and give them the time to get through it. However,if the borrower is living beyond their means,or at least their current means,and their is no reason to believe their financial situation will improve in the short term then I don’t think it is doing the homeowner any good to tease them with a short term fix. The money and effort in that situation may be better spent allowing them to make substantially reduced or no payments while they make an earnest effort to sell the home and relocate to something more affordable or even give them financial assistance for a deposit and rent.
Another thing that needs to be looked at is the loan balance versus the current value of the home. If the borrower is “underwater”,meaning they owe more than the house is worth,then once again I don’t think a short term fix that helps them avoid foreclosure really does them,or ultimately even the lender,any good unless something is done to reduce the loan balance to the point where the homeowner can reasonably expect to be able to sell their home and cover the debt in the near future without having to wait for it to appreciate 30% just to get back to even.
Obviously this is a huge problem and,due to the number of individual homeowners many with very unique situations,there is no easy fix. Quite frankly I think it is easier for our government to figure out how to help save the banks or the automakers as there are only a few companies to deal with. However even though it will take extra effort to help all the homeowners that need it hopefully the government does (or will) see the importance of doing what it takes to properly address the problem and come up with solutions that will help mitigate the losses to the banks and lenders as well as provide more than just short-term help to the homeowner.
If you are a homeowner facing foreclosure,or behind in your payments,please check out an earlier post I wrote which offers advice and resources for you.. click here for post.
Related posts:
- Mortgage delinquencies increase again but loan modifications appear to be working
- Mortgage Default Rate Improves In April
- Homeowners Should Think Twice if Considering a ‘Strategic Default’
- Home Affordable Foreclosure Alternatives Program (HAFA) Launched
- Mortgage delinquency rate declines by largest rate in two years
