Revolving Defaults On Home Loan Modifications

Of course you could look at a 50% recidivism rate as a bad thing, or you could look at it as 50% of all home loan modifications work.  That is a good thing.  Much like asking yourself if the glass is half full or half empty, it pretty much depends on whether you are drinking or pouring.  A 50% success rate in home loan modifications is good or bad depending on whether you are actually trying to save the American dream for everyone you can, or you are trying to bail out banks.  Are you looking at it as working to solve an individual crises or as a statistic?

Anyway, that is my overall thought about the subject.

As reported by HuffPo and other sources, a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision reports that more than 50% of homeowners with loans modified earlier had missed at least two months of payments a year later.

Very telling in the report, however, was that among those who had their payments reduced by 20% or more, 60% of those had not defaulted again.

What the report says to me is that the program works substantially well, but that nothing works as well as when the all of the underlying difficulties that cased the homeowner's crises in the first place are not effectively addressed.  You can end the predatory lending and modify the loan, but if the payments are too high, if the person is still unemployed or under employed, of if the market conditions around the home, the loan of which was modified, have tanked so there is no exit strategy when needed, nothing is going to help that is not more comprehensive in scope.

This is the reason that Congress should have placed bankruptcy judges in charge of this crises.  Boots on the ground, as such, that can evaluate the matter up close and personally.  Also, bankruptcy represents a program that is already designed to deal more effectively with the comprehensive issues a person faces.

Typically, the home loan is only one of the problems.  If the homeowner has large medical bills, credit card bills, payday loans or other unsecured debt in a state where wage garnishment is likely, no amount of effort to restructure the home loan is going to be that helpful in the long run.

As for values and cramdowns, I think it is just silly to suggest financial institutions and the government are going to have to take back these houses at great expense, and then sell them for a highly discounted price, depressing the rest of the housing market for everyone else, and then suggesting that it is somehow not okay for distressed homeowners to keep their homes for its actual value.  Why does it make sense that investors and rich homeowners and agribusiness can do this, but that ordinary people cannot.  A former investment banker can cramdown a ocean front vacation home, but a middle class working stiff cannot.  It just offends the fundamental sense of justice, but ultimately this is what the Blue Dogs and nearly all of the Republicans think is right.

The question, ultimately, is whether ordinary people in financial trouble can reorganize and keep their homes at no further detriment for the financial institutions holding the note than what the financial institutions already face?  It is simply wrong to suggest that this should not be the case.  And, to the extent that we have revolving defaults is because we have assistance that does not even begin to address the comprehensive problem that homeowners are facing.

I understand that there are some Democrats in the House and Senate that intend to bring up the cramdown provisions again this Fall.  Let us all hope they do better this next time.  The real fate of too many real, salt of the earth, God-fearing people depend on it to save their way of life.

Comments

[Patches]

AMEN! Blue dogs need to get with the program of helping people in their districts or need to be put to sleep! Figuratively of course.

[Tax Liens]

I think a former investment banker can cramdown a ocean front vacation home, but a middle class working stiff cannot. It just offends the fundamental sense of justice, but ultimately this is what the Blue Dogs and nearly all of the Republicans think is right.