Wall Street and the news media have paid considerable attention to U.S. home mortgage modifications, but not much notice has been given to the growing problem of re-defaults on these modifications. Re-defaults are a massive problem — and endanger the U.S. mortgage and housing markets.
Re-default mess The U.S. Office of the Comptroller of the Currency regulates national banks and publishes a quarterly Mortgage Metrics Report. The OCC data comes from banks, which are the largest servicers of residential mortgages. In its report for the first quarter of 2013, the OCC stated that these servicers had modified slightly more than 3 million loans between the beginning of 2008 and the end of 2012. Of these modified mortgages, 47.
The Fitch report emphasized that the most recent Fannie Mae modifications in 2015 showed the fastest re-default rates since 2010. The analysis showed this was due to the steadily rising percentage of modifications between 2010 and 2015, which were second- or third modifications. In 2011, 95% of all the modifications originated were first modifications. By comparison, more than one-third of the modifications in 2015 were second- or third modifications.
In early 2018, these re-default statistics disappeared from Fannie Mae's Credit Supplement, which was renamed Financial Supplement. Fannie Mae did report in its annual 10-K Report for 2018 that the 12 month re-default rate had climbed to 39%. Based on Fitch Ratings data, the re-default rate for Fannie Mae loans modified three or more years ago could be approaching 50%.
Forbearances and repayment plans The 17 million “Other Workout Plans” from Hope Now’s latest report included 10.4 million “Repayment Plans” offered to borrowers who claimed unforeseen but temporary financial distress. They were nearly always coupled with a temporary forbearance by which the lender agreed to a three- to 12-month reduction or even suspension of the regular mortgage payment.
Home prices is CA and NY are going to see a correction. The laws of Supply and Demand win. Period.
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