More Defaults in Loan Modifications

22 Dec More Defaults in Loan Modifications

The Comptroller of the Currency and the Office of Thrift  Supervision report substantial and rising rates of re-default in cases where loans have been modified or payment plans offered to troubled borrowers.  The joint study shows increasing re-defaults both where the borrower has entered into a plan to catch up regular payments, and where the loan has actually been modified, theoretically to make the loan more affordable.  The obvious conclusion is that the loan modification terms available in many cases are not enough to make the loans truly affordable.

Although the conclusion of the study is troubling, it may reflect only the tip of the iceberg, since it includes data from thrifts and banks, but not other lenders.  What the report doesn’t reflect is the frustration of attempting to work out a mortgage modification or payment plan which is no more affordable (or even less so) than the original payments.  It also provides one more reason to allow bankruptcy courts to modify mortgages under court supervision, to offer a better chance of success.

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