David Streitfeld of the New York Times with an update on the administration’s mortgage-modification plan, a subsidy designed to keep people in their houses by reducing their mortgage payments:
The number of homeowners who defaulted on their mortgages even after securing cheaper terms through the government’s modification program nearly doubled in March, continuing a trend that could undermine the entire program…
The Treasury Department said it could not explain the growing number of what it called cancellations, almost all of which were apparently prompted by the borrower’s being unable to make the new payment.
We’re still talking a relatively small number of “re-defaults” on permanent modifications–2,879 since the program’s inception. But the number of “trial modifications” cancelled is much higher–155,000. And only 228,000 modifications are now permanent.
According to Calculated Risk, the pace of new modifications is now slowing, perhaps because banks can’t find many more eligible borrowers. The credit quality of those who get modifications, meanwhile, is lousy: Debt-to-income ratios are sky high:
In summary: 1) the program is slowing, 2) the borrowers DTI characteristics are poor – and getting worse, and 3) the re-default rate is rising. Oh, and 4) there are a large number of borrowers in modification limbo.
And there are another 7 million people behind on their mortgages.
In other words, the mortgage-mod program appears to be doing what many critics feared it would: Temporarily keeping people in houses they can’t afford. Hard to see how that helps the country (and the borrowers) get through this period of reckoning quickly and start fresh.
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