The mortgage industry has been crowing for a couple of years now about its good faith efforts to fix the failed loans that it shouldn’t have made in the first place. The point, of course, has been to avoid any government mandate on modifications—a goal they’ve thus far accomplished. But the proof is in the pudding, and over the weekend, a Treasury Department report served up the pudding. It tastes nasty.
The Treasury report, which lays out year-end data for 2008, confirmed what consumer advocates and researchers have been saying for months: Mortgage servicers are offering borrowers unhelpful repayment plans and calling them modifications. Here’s the take-home stat: More than half of all loan workouts in 2008 failed to reduce even monthly payments—and nearly a third actually *increased* the payments. The problem, the report found, is that the majority of workout deals are repayment plans that merely give borrowers more time to catch up rather than change the terms of the loan.
Given this, it won’t shock you to learn that 60 percent of loans modified in the first three quarters of 2008 were at least 30 days delinquent at year’s end—something media reports have taken to calling borrower “recidivism.” Sigh. There are repeat offenders involved here, to be sure, but they sure ain’t borrowers.
Meanwhile, the problem is getting worse fast. The most troubling part of the Treasury report may well be the new hemorrhaging among prime loans that it details. We all know subprimes are failing, but the report showed that among everyday, run-of-the-mill prime loans—you know, the safe and responsible kind—delinquency more than doubled last year, “with a significant rise from the third to the fourth quarter.” It’s snowballing.