Loans modified in 2009 are 40-50 percent less likely to be seriously delinquent six months after modification than loans modified in 2008, thanks in part to significant reductions in monthly mortgage payments, according to a new report from the State Foreclosure Prevention Working Group.
The data, which was collected from nine non-bank mortgage companies servicing 4.6 million loans nationwide, suggests the re-default rate won’t be as dire as some think.
For example, 30.8 percent of loans modified between August and September of 2008 were seriously delinquent after just six months, but only 15.3 percent of loans modified in August and September of 2009 were seriously delinquent after a similar period of time.
Recent predictions indicated as many as 75 percent of loan modifications would re-default, partially because the majority actually increase the loan balance, thanks to the addition of servicing charges and late payments.
In fact, only one in five loan modifications included in the survey reduced the original loan amount.
Most Loan Modifications Increase Mortgage Balance
And only 13.7 percent of all modifications completed during the first quarter of the year involved principal reductions greater than 10 percent, while 70.4 percent increased the unpaid principal balance.
The State Working Group also found that more than 60 percent of homeowners with serious delinquent loans are still not involved in any loss mitigation activity.
“Since the inception of monthly data collection in October 2007, these nine servicers have completed over 2.3 million foreclosures as compared to 760,000 loan modification,” the report said.
Not great news, but perhaps not as bad as some think it’ll be.