Modifications cause higher mortgage payments and re-defaults

The Office of the Comptroller of the Currency and the Office of Thrift Supervision report showed that there were fewer than 90 percent of mortgages being paid on time in the fourth quarter of 2008, a 3% less than in previous year.

Some other information that the report has provided were: the percentage of prime borrowers who were at least 90 days late on their mortgages more than doubled during March 31, 2008 and Dec. 31, 2008, and reached 2.4%; the number of prime mortgages more than 90 days overdue has reached 550,000 and thus for the first time surpassing the subprime tally; 41 percent of borrowers have defaulted again within eight months for the modifications done; and 46 percent of those offered during the second quarter defaulted again. 

Although, stated regulators, the reasons of the case are not clear, it is obvious that mortgage workouts don’t always result in a more affordable mortgage. In 32 percent of the cases borrowers had a higher payment after the modification, as the lenders add the late fees and missed payments to the cost of the loan. 

“This new data shows that, in the current stressful environment, modification strategies that result in unchanged or increased mortgage payments run the risk of unacceptably high re-default rates,” the Comptroller of the Currency John C. Dugan said in a statement released with the report.