This analogy may be lost on younger readers who don't know this old idiom. The reference is to the time long ago when you did something wrong and your Dad took you out to the woodshed for a paddling, to get you to mend your ways. There never was one at my home growing up, but there were times when I needed a talking to and, thankfully, my Dad did it in private rather than in front of the rest of the family.
In news released yesterday, Treasury Department officials are having serious discussions with loan servicers – otherwise known as lenders – to ramp up loan modification activity. The goals of the drive to achieve stability in the housing market were substantial: a target of between 3 and 4 million homeowners currently at risk of foreclosure. They were supposed to be helped by the Home Affordable Modification Program.
Unfortunately, at this stage results are falling dramatically short. Statistics released for October show that of 3.2 million homeowners who were more than 60 days delinquent, some 2.7 million had been sent information regarding a modification. There has been a cool response to these notifications, and only 900,000 borrowers were offered trial modifications. Of these, only 650,000 entered into the mandatory trial modification periods.
Of these, a minuscule number, fewer than 2,000, successfully ended the trial period and achieved a permanent modification. There is no way you can characterize this as anything other than a fiasco. In fairness, some of these homeowners have not been in the trial period long enough to convert to a permanent one even if they were qualified and wanted to. Indeed, the Treasury Department is forecasting that in November and December they expect 375,000 will covert to permanent status.
We will have to wait to see if their estimates are right, and I hope they are, but consider that helping $375,000 people out of a pool of 3.2 million is not a measure of a successful program. Even if those 12 percent are successful, it means 88 percent of borrowers in default are still twisting in the wind. When and how are they going to get help?
I am also concerned about the "re-default" rate that was experienced under other loan modification programs. In those cases, 50 percent of borrowers were back into default within 6 months of the modification of their loans. What that tells me is that the lender may have thought it was a "good" modification, but 50 percent of borrowers didn't agree. They thought that it did not help to the extent that they wanted. So they bailed. We might find that exactly the same thing happens here.
Now, back to the woodshed: the Treasury Department is instituting a more severe program to measure performance on a daily basis and to institute sanctions against those who do not achieve better results with these programs. I hope they are successful, but I still have my doubts. I do not think we are going to achieve really meaningful results until investors bite the bullet and start reducing loan balances for people hopelessly under water.
To find out more, check out the Treasury Department’s Press Release and view the data in the October report.
Finally, it is obvious that several millions of people were contacted about a modification but did not think it important enough to respond so they could, at least, hear an offer. If that affects someone you know, encourage them to become proactive and contact their loan servicer as soon as possible.
Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower
articles, Randy is a mortgage broker who has financed over $1 billion
in properties. He writes about home buying and real estate finance
topics for CreditBloggers.com.
Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.
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