Mortgage defaults

The governments Home Affordable program has not reached as many home owners as projected, however, it has helped to stabilize a platform for lenders to follow and produce suitable loan modifications to help homeowners stay in their homes. The likely hood of homeowners re defaulting on loan modifications within a 12 month period is pretty high. However, the number of homeowners who have re defaulted has decreased. Subprime loans are more likely to have a higher default rate versus prime loans. Overall both subprime and prime are down slightly by 10 percent in each area. Because many subprime homeowners have had multiple loan modifications it makes it hard to really pin down how likely modified loans are to re default.

Many mortgage servicers have other loan modifications in place to help homeowners who may not qualify for the governments Home Affordable or HAMP program. With the increase of lender and mediation services available to homeowners has only lengthened the foreclosure process, this of course resulting in less homes going to sale and going to market. Although loan modifications have saved a lot of homes, for some this is just a temporary band aid to a financial problem that really is masking a larger problem. The likely hood of mortgage loan modification defaulting is higher versus a mortgage that hasn't been loan modified. In a report by Moody's Investor service they found that modified loans were three times more likely to default. This report also found that the size of the borrower's monthly mortgage payment reduction had a much greater effect on the presence of the borrower defaulting than the equity in the home.

The average delinquent loan that was not backed by a government agency was about 22 months behind, according to some the projections the current pipeline of distressed loans and foreclosures will take about four years to clear.

With the effects of the government and lenders modifying home loans, the default rate has been decreasing and the real estate market will eventually recover although it will be a very slow recovery.

Posted in: Mortgage