Loan Mods: Re-Default Rate Over 50% on Subprime Loans

In the recent past it often appeared that lenders were granting loan modifications as a temporary fix or a bandage on a gaping wound. This article confirms my fears. Whether it’s a lack of diligent processing or a failed system the fact remains that the number of homeowners that are “re-defaulting” after a loan modification is staggering!

As robo-signing reviews reach completion, servicers are beginning to work through some of their foreclosure backlogs, according to a third-quarter report from Moody’s Investors Service. 

Moody’s reports that as servicers work through the bulk of their delinquencies, modifications are on the decline. Servicers are now turning to loss mitigation alternatives, including short sales and deeds in lieu, Moody’s says.

Moody’s calculated a decline in “total cure and cash flowing,” measuring successful loss mitigation efforts in the third quarter. The decline “resulted from servicers having worked through significant portions of their eligible 60-plus delinquencies,” according to Moody’s.

Citi, GMAC, and Chase experienced the greatest decreases in cures.

Among subprime loans, Ocwen posted the highest cure rate – 44 percent. The high cure rate at Ocwen is linked to high numbers of modifications relative to its peers.

Moody’s notes that the high cure rate includes “a significant number of re-modifications,” which occur when an initial modification fails.

Ocwen saw re-defaults among 54.5 percent of its subprime modifications, the highest rate among its peers.

Ocwen was followed by Bank of America with a 50.5 percent re-default rate on modifications of subprime loans.

BofA also posted the highest rate of re-defaults of ALT-Aloans (42.3 percent) and the second-highest re-default rate for jumbo loans (35 percent).

Consistent with its high re-default rate, Ocwen ranked highest for re-modifications of subprime loans. Ocwen’s re-modification rate for the third quarter was 24.8 percent. The second-highest re-modification rate was seen at Wells – 6.8 percent.

The high re-default and re-modification rates at Ocwen “calls into question Ocwen’s process in evaluating borrowers for a modification,” Moody’s states.

However, Moody’s also concedes, “not all of the first modifications were necessarily completed by Ocwen due to servicing acquisitions prior to the analysis period.”

Moody’s also reports foreclosure sale to REO liquidation timelines are little changed from the second to third quarter. However, Moody’s forecasts longer timelines throughout the year.

Source = DS News

Ocwen and B of A alone saw Loan Modification Re-defaults over 50% of the time on sub-prime loans! Maybe the answer isn’t loan mod at all. These statistics obviously show that loan modifications are failing at high levels. I absolutely understand the want to save a home from foreclosure and the emotional ties that come with the thought of letting go and moving on.

The question that must be asked in this case is would it not be better for you and your family to short sale now, get out from under the tremendous burden and anguish caused from mortgage delinquency and being upside down by TENS if not HUNDREDS of $1,000’s,  rent a home and rebuild over the next few years with the possibility of buying a bigger home for less? It’s a question that faces many.

If the answer is yes or even maybe please feel free to reach out to us for a free consultation where we discuss in detail your whole situation and offer advice on the best course of action (even if it’s NOT short sale). Even if you’re in the middle of a loan mod and feel stuck we can help get answers. No obligation, just information.

Contact: or call (714)698-9473

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