Re-default nation

The data come from the largest national banks and thrifts and cover 35 million loans worth more than $6.1 trillion, or 60% of all first mortgages in the U.S.

Barbara, this is really deceptive. The information regarding defaults is just one 'data point' that comes from a report that the Treasury Dept releases quarterly called "Mortgage metrics" -- and its that larger report that covers "35 million loans".

We have no idea how many loans are involved here, or how much money is involved -- and IMHO, those numbers are likely to be insignificant. "Loan modification" wasn't something that banks had been doing a lot of to begin with; and there is simply no way to determine, from the little information that has been released, whether these "modifications" made any significant difference in the affordability of the mortgage. Moreover, we don't even know how many of these mortgages are loans to actual resident homeowners, as opposed to "investors"/speculators who are most likely to approach banks to "modify" loan terms, and to walk away from properties that are "underwater".

The Office of the Comptroller of the Currency told me these figures come from tracking the performance of about 60% of all first-lien mortgages.

all that tells you is the size of the overall data set (which is "60% of all first mortgages") rather than the size of the subset of that dataset ("defaulting renegotiated mortgages"). We could be talking about 100 renegoiated mortgages per quarter, or 1,000,000 per quarter.

(Its also likely that these mortgages are atypical to begin with, insofar as most mortgages are "securitized", and only loans which have not been securitized were even subject to renegotiation...)

Call me skeptical (or paranoid), but unfortunately, any time a Bush administration appointee releases any kind of data, you have to ask "what's his agenda, and what does this really mean?". IMHO, the entire banking/securities industry is desperately trying to find a way to avoid doing what is necessary in terms of 'renegotiating loans', i.e. renegotiating the price of the house itself to more closely reflect current market conditions. By putting out data saying "re-negotiating doesn't work" in this fashion, Dugan appears to be serving the interests of the banking and financial industries, rather than the "average joes" who bought into the lies and myths promulgated by those same industries to maximize their profits.

I agree with Plukasiak in so far as realizing the outstanding balance of many of these loans has to be lowered. Unfortunately, this would be an insanely difficult thing to do. It's almost assured that every home owner in America with a mortgage would potentially file to have this done, which puts the pool of mortgages to be considered in the 60 million range.
As for being overtly skeptical about any Bush appointee, I'd remind everyone that this fix we're in has more to do with the push by liberal democrats to get lots of people in homes that they never could afford. The bottom line is that Bush is punting many of these major decisions to Obama. Good or bad, just about any lame duck president would take this approach. As bad as things are, it's not like a six mile wide asteroid is about to hit the earth. It's going to be a long slog, but in the end, many of these persons who are going under deserve what they're getting for being so gullible about buying a home without documenting income, etc.
So, the hard part is crafting a plan that's fair all the way around and tries to do its best to eliminate the potential fraud that such an immensely needed plan may bring while doing it in relatively short order.

I think that the data is interesting, and leads me to believe that these negotiations are a bit tougher on the borrowers than we had imagined. In other words, the lenders are willing to bend a bit, but only a bit. There are limits to their willingness to negotiate a new monthly payment. They're not willing to accept any amount that people can obviously pay, but are pushing that amount as high as they can.

I would say that 50 %, in that scenario, is reasonable, if it wouldn't be worse for the borrowers. But Barbara is asking the correct question: How realistic are these renegotiated payments? And how much do they differ from what was being paid before?

After all, a 50 % rate might be fine if what you're really trying to do is stabilize prices, not really end foreclosures.

DTL probably has the proper vewpoint. Although, (ding-ding-ding) I agree with PLuk, the underlying datasets are more useful in illuminating what is actually taking place. Further, I would caution everyone that this is an extremely short-term data field. It may be that the most desperate (and thus closest to the edge) were processed first. They were likely to be at the break point already.
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To return to DTL position, I think it is very likely that banks are like many Americans and Bush waiting for an Obama administration and 4Q data. If it is really bad, I think many will take their lumps and start dropping properties likel hot potatoes. Prices will fall a lot further but a bottom will be established quicker. Markets like certainty, and right now, there is little certainty on what will take place. The closer we get to an Obama takeover with more defined policies the better the markets will perform. Thus, I think late 3Q and 4Q of '09 could thus prove to be very strong in relative terms with absolute recovery becoming apparent in 2Q '10.

Most of the banks are doing a horrible job of working with borrowers. The loan modification departments have the most underpaid, incompetent staffers, who often just want to get the borrower off the phone. They don't care how much financial damage they are doing to their employer, who has to pay far more in the process of selling a house at auction, paying to restore the house, paying taxes to the city, etc. than they would ever lose by negotiating with most borrowers in good faith.

The fact is, that the scrutiny that is being placed on the auto companies should have been placed on the banks before we gave them such a massive amount of money. It is a huge scandal, and one it will take decades to realize the full scope of.

To answer Barbara's question directly: "Is it because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers?"

Yes. Exactly! If I've had my loan terms changed making my load somewhat more affordable, but I still have the same $350K mortgage, but the market says my house is only worth $275, then there's a big incentive for my to go delinquent again, especially given that the situation continues to get worse. I think a lot of borrowers expect Obama to waltz into office and pen an executive decision that places a national moratorium on foreclosures for say 90 days.

But we have to take into context the structural correction that has to occur long-term. Our economy became way too dependent on home and commercial construction, lending, and high finance, etc. Now, we'll probably have at least 3 to upwards of five million additional people out of work before the economy begins begins to stabilize. There's only so many bridge and road construction, incandescent to CF lights swap out, etc types of jobs to be created over the near-term. The whole green job creation is going to take time. Hopefully, Obama will realize that he has to make a massive and immediate commitment to renewable energy sources: algae, switchgrass, wind, solar, and wave. But again, these types of jobs will take until his 2nd term to really see them make a dent into the current unemployment situation.

Home construction and car building aren't going to power the next jobs recovery. When you recognize what we're up against, it's really scary how long this might take to correct. So, Congress must make it a priority to put together a loan modification program that will give the system 36 months or so to sort out all of these way overprices homes. Moreover, cars like homes have got to get more affordable or people simply won't buy them in the numbers required to stimulate that industry. Plug in hybrids like the Volt and the next generation Prius will remain very high in price, so my recommendation to Obama would be to use this current restructuring as an opportunity to ramp up diesel car production, diesel fuel refining capacity to meet demand, while recognizing that diesel emission standards may need to be rolled back slightly to accommodate the needed cost penalty. Just look at the Opel (GM subsidiary) Corsa and its 60 MPG highway mileage: http://www.vauxhall.co.uk/vaux/vehicle/vehicleBrandAction.do?method=viewBrand&brandCode=9A

Barbara,
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W/r/t/ comment 8.- One might suggest that this data is not sufficient to base a decision either way.
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To say that the jury is still out on this matter is probably the more prudent and well-considered remark, IMHO.

Based on what I hear from some friends and associates, it appears when the banks, mortgage companies etc. themselves negotiate with the consumers, they just add on the delinquency amount to the back end of the mortgage and have them pay an extra two or three hundred dollars a month. This is absolutely no help. If the consumer uses an outside attorney, the payment, interest rate and possibly even the principle amount can be reduced. I believe that is why those numbers are so high. I believe you will see those numbers come down as more and more consumers utilize outside services to obtain their loan modification. (The banks are still as GREEDY as ever).

Except they really aren't as greedy as ever. If they wanted to save money, in the long run, they would be making more drastic modifications, so the homeowner could stay in their home (and even so those dastardly investors, that bought a hell of a lot of homes, and were approved mistakenly for these mortgages in the same way that the consumer was, don't walk away), and the bank wouldn't take the much bigger loss that comes with selling the homes at auction, and all the many thousands of dollars of costs that the bank has to pay before it even comes to that. In the long run, the banks are losing so much money by not working with the homeowners, and delaying the overall recovery!

@loan99

Um. If someone can't afford to pay their house payments, they certainly can't afford an attorney. Any other outside agency has no authority to require the mortgage loan balance be lowered to reflect the real value of the home. And with nearly 1 in 10 homes either behind in payments or in foreclosure, it's hard to say when court ordered modifications to loan amounts would do any good to keep the economy from continuing to slip deeper into a recession. The jobs and foreclosure situation will continue to be an extremely vicious cycle until Uncle Sam takes some unprecedented step to stop the bleeding.
And exactly how fast can we expect Obama and Congress to take action? It's taken Uncle Same weeks to near a deal on an auto bailout. How long is it going to take to establish guidelines of how mortgage balances can effectively be adjusted to current to local housing conditions?