No quick fixes, but ‘sustainable’ mortgage payments might help
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Response to Monday’s redefault statistics from the Office of Thrift Supervision, which showed that more than half of homeowners fell behind on payments within six months of a loan mod, is reported in Tuesday’s Wall St. Journal article, ‘Easing Mortgages Isn’t a Panacea’:
... Federal Deposit Insurance Corp. Chairwoman Sheila Bair, an advocate of stepped-up loan-modification efforts, noted the data didn’t look at whether borrowers’ mortgage payments were lowered, or mortgage companies verified the incomes of struggling homeowners. The information ‘raises more questions than answers because it fails to define, in a meaningful way, the modifications that have redefaulted,’ she said.
Nevertheless, they have redefaulted. Here’s a clue why later in the story:
About one-third of borrowers have mortgage-related payments that exceed 60% of their monthly income after their loan is modified, said Michael van Zalingen, director of homeownership services at Neighborhood Housing Services of Chicago. For another third, the monthly payment equals 40% to 60% of income. Mortgage companies often ‘are offering what they call a loan modification, but it doesn’t materially change the payment, so the household is stuck in the same boat as they were before they got behind,’ he says.
Van Zalingen’s statistic isn’t sourced, so I’m assuming (and hoping) that’s just his micro-market. But still. Mortgage-related payments exceeding 60% of income after the loan mod?
Newer efforts, such as the FDIC’s program for troubled borrowers with loans serviced by IndyMac Federal Bank, may have a higher success rate because they focus on ‘sustainable’ mortgage payments, said Mark Pearce, deputy commissioner of banks in North Carolina. But any benefits could be offset by a weakening economy and falling home prices, some analysts note. In its IndyMac program, the FDIC is aiming to rework troubled loans so that borrowers’ mortgage-related payments don’t exceed 31% to 38% of monthly income.
Which takes us back to where the home loan bar was previously set before this mess -- at about 33% of income. And let’s bring back that 20% down payment while we’re at it.
-- Lauren Beale
Thoughts? Comments?