Loan Modifications: Redefault Rates May Reach 75%
May 31st, 2009Via: Wall Street Journal:
A central tenet of Washington economic policy for the past three years has been that the key to ending the recession is stopping mortgage foreclosures, whatever the cost. Well, another new study shows that mortgage-servicing companies are having a terrible time of it, not least because the mortgages are continuing to sour at a rate nearly as fast as they can be modified.
Yesterday’s Journal reports that Fitch Ratings looked at mortgages bundled into securities between 2005 and 2007 and managed by some 30 mortgage companies. Fitch found that a conservative projection was that between 65% and 75% of modified subprime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes. This is an even worse result than previous reports by federal regulators. Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months.
