Making the most of loan modifications
We’ve done a fair amount of ranting about the importance of foreclosure prevention, but also realize we’ve neglected an aspect of the process that is critical to its success: modifying loans to minimize risk of re-default.
As a story in the Wall Street Journal pointed out this week, foreclosure mitigation has met with only modest success so far. According to a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision, the number of newly started foreclosures fell 2.6 percent, to 281,298, in the third quarter from the second quarter, partly as a result of state moratoriums on foreclosures and increased efforts by mortgage servicers to lower interest rates or otherwise modify troubled mortgages.
The number of foreclosures under way during this period, however, rose 11 percent, to 617,642, and the number of foreclosures completed rose nearly 8% to 127,738, according to the report.
Unfortunately, more than half of loans modified in the first quarter had slipped back into delinquency after six months, and were 30 or more days past due by the end of September, the report said. Comptroller of the Currency John C. Dugan suggested several factors could be behind the high re-default rate, such as the worsening economy or loan modifications that don’t reduce payment burdens on consumers by enough.
But as a story in Sunday’s New York Times suggests, a lot of loan servicers are learning on the fly about effective loan modifications – or are simply too busy to do a thorough analysis. The Times article points out that borrowers seeking loan modification could be faced with a loan servicer who is in a hurry to reach a resolution. A well-structured modification, though, likely will require several exchanges between borrower and servicer.
One of the tips for borrowers facing a loan restructure is to develop a realistic monthly budget to determine what mortgage payment they can afford.