The third quarter Mortgage Metrics Report Release and Mortgage Metrics Report by the Office of the Comptroller of the Currency and Office of Thrift Supervision was released Dec. 21, 2009: despite increased attention to creating payment plans for homeowners (about 680,000 more such modifications in the third quarter of '09) performing mortgages fell, for the sixth straight quarter, to 87.2% of those loans serviced and foreclosures in process increased to 3.2% of serviced loans--more than 1 million homes in foreclosure in third quarter 2009. And those modifications are not good solutions: they primarily provide temporary payment plans rather than overall principal reduction (with accompanying interest payment reduction), and often land in "re-default" within six months. These are not just subprime mortgages anymore, of course, but a large number of prime mortgage--more than double the rate of the same period in 2008.
The release brags about the "home retention actions" being implemented by servicers. The report notes that "[l]arge national banks and thrifts implemented more than 2.4 million loan modifications, trial period plans, or payment plans between January 1, 2008 and September 30, 2009." Id. at 4. But if these actions aren't ones that really work--because the temporary plan runs out before a genuine real modification is put in place, because the payment reduction is not sufficiently large to make a real difference, because the principal is much more than the house is worth--then they are not really worth bragging about. The report indicates that "only 781, or less than 1 percent of the trial period plans as of September 30, 2009, had been converted to permanent HAMP modifications." Id. at 4. The re-default rate suggests that these retention actions are just scraping the surface of what must be done. That figures, since while touted as helping troubled homeowners, banks' and servicers' primary objective is to limit their own and investor losses by avoiding easily preventable foreclosures.
It's time Congress did the right thing--what should have been done months ago when this crisis began. It's time that Congress enacted a simple "homeowner protection act" that would permit mortgage loan principal amounts to be modified in bankruptcy just like every other loan can be. All the garbage put out by the banks and mortgage servicing companies and mortgage brokers asserting that modification of principal amounts in bankruptcy would just hurt homeowners by raising rates, etc. is just that--garbage. The fact is, servicers like the lucrative fees that they get from serving REO property, and banks don't want to admit the real value of the loans on their books.
But you and I all know someone who has lost their home through no real fault of their own--job loss, plunging values, pay cuts, catastrophic medical expenses. Keeping people in their homes ultimately saves us all money and helps the economy grow instead of stagnating. Bankruptcy is a good indicator of genunine problems that need to be dealt with, and modification of principal amounts (and, of course, interest as well) on residential mortgages is a good solution for dealing with those problems. Congress knows it. Now Congress just needs to do it.
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