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Loan Mod Re-Default Stats Make Good Water Cooler Conversation

Some people are more interested in statistics than others. Personally, I am fascinated by the statistics surrounding the trials and tribulations of the HAMP and HAFA programs (the government’s loan modification and short sale alternative programs). I speak with so many people that call me at the very last minute when their loan modification has been declined or when they have already paid someone thousands to help with the modification and are seeing the modification slide down a slippery slope.

Of course, everyone who is having trouble making ends meet probably wants to keep their home. Who wouldn’t? Sadly, however, sometimes it is hard to make the mortgage payments—even after being approved for a loan modification.

On February 4, 2011, dsnews reviewed a Moody’s report on “the dynamics of re-defaults” in loan modifications. Here’s the skinny.

In this report, Moody’s calculated the six-month re-default rates on approximately 78,000 loans that were modified between early 2009 and mid-2010 by eight of the major loan servicers.

Here is the breakdown of each company’s modification re-default rate:

  • Bank of America – 33%
  • Wells Fargo – 29%
  • American Home Mortgage – 26%
  • Ocwen – 24%
  • GMAC Mortgage – 23%
  • JPMorgan Chase – 22%
  • CitiMortgage – 20%
  • Litton Loan Servicing – 20%

In plain English this means that 33% of those who obtained loan modifications through Bank of America have since re-defaulted on their loans. Eeeeeeek!

Moody’s also made note that there has been some improvement in

the performance of modifications since servicers started aggressively reducing borrower payments in 2009. “The average six-month re-default rate on loans modified in the first half of 2010 improved to 25 percent from 31 percent for loans modified in 2009.”

Additionally, Moody’s arrives at an interesting conclusion: “We have found that a loan that is modified and [then] reported as current is three times as likely to default over the ensuing twelve months as is a current loan that has not been modified.”

What will happen to these mortgages down the road is anyone’s guess. Perhaps they will result in foreclosure (more REO listings for you), deed-in-lieu, or even a short sale (another great listing opportunity). In a few years, we can all stand around the proverbial water cooler and chit chat about the results in between comments about Dancing with the Stars or Chrstina Aguilera’s next big snafu.

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Bob Phillips

Melissa, I think you may be relying on “news” that was a bit outdated. If you concentrate on more recent statistics from, I think you would find out that loan mods – just like short sales before them, have improved quite a bit, in terms of becoming more effective, and that as last year progressed, the re-default %’s starting going down considerably.

In my humble opinion, the banks have become better at determining candidates who WOULD succeed, and have also become more efficient in the processing of them.

Just a thought to consider.

Melissa Zavala

Category: Credit

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