Almost half of modified mortgages default

According to the Office of Thrift Supervision and the Office of the Comptroller of the Currency, an astounding number of mortgages that have been modified through various programs end up in default.

Consistent with last quarter’s findings, the report also showed that re-default rates on modified mortgages were both high and rising during the first three quarters of 2008, with loans modified in the third quarter showing the highest re-default rates. For example, the percentage of modified loans that were seriously delinquent (60 or more days past due) after eight months was 41 percent for loans modified in the first quarter and 46 percent for loans modified in the second quarter. The trend appeared to continue for loans modified during the third quarter.

So, you're in deep trouble, you want help, you modify your mortgage...oops, you're still screwed.

Why? Well, it seems that only 42% of the refinancing deals result in lower payments! Duh! Shock of all shocks, the refinancing deals which results in the same or higher payments had a higher percentage of defaults:

Re-default rates were consistently lower for modifications that resulted in lower monthly payments. When modifications decreased monthly payments by more than 10 percent, only about 23 percent of the loans became seriously delinquent six months later. By contrast, some 51 percent of the loans in which payments remained unchanged were seriously delinquent after six months. The comparable number for loan modifications in which payments increased was 46 percent.

This report claims it is unclear as to why one has these higher default rates. Do we have another example of anyone with a 2nd grade education can figure it out, yet government bureaucrats and financial wizards can't?

Uh, the reason these people are in default in the first placee is they ain't got the money and lower payments means they might get the money.



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