December 15th, 2008 (Modified on January 30th, 2013)

Mortgages: Loan Mods Not the Answer



The December 12 issue of HSH’s Market Trends Newsletter, “Mortgages: Loan Mods Not the Answer,” focused on last week’s slip in refi activity, the latest movement of mortgage rates, and the surge of loan-modification programs that have yet to produce their desired results.

“Conforming audiences are enjoying new, much lower costs for mortgage money and are continuing to respond to federal stimuli. Refinance activity did slip a little bit this week — not really surprising, given the impending holiday crush — but still managed to nearly hold onto last week’s big increase.”

“That earlier surge in refinancing was probably due mostly to borrowers already waiting to pull the trigger on their applications. This week’s still-firm number probably represents a mix of some laggards from that bunch as well as new entrants. Self-sustaining refinancing waves require several factors, including low (and especially steadily-declining) interest rates, sufficient news media coverage about rates and mortgage activity, and increasing buzz around the water cooler (which, these days, includes Twitter and such).”

“Overall, the average 30-year fixed-rate mortgage in HSH’s FRMI series came in at 6.08%, a drop of 14 basis points (0.14%) from last week’s 6.22%. HSH’s Fixed-Rate Mortgage Indicator (FRMI) calculates the average rate which includes conforming, jumbo and expanded conforming mortgage prices.”

“Hundreds of thousands (if not millions already) of loan mods have occurred this year…”

“Even as more modification plans are being produced, the Office of the Comptroller of the Currency (OCC) reported some gloomy news about loans already modified in the first two quarters of this year. Within just six months of a loan modification being put into place, a full 56% of borrowers were again in default (defined here as at least 30 days behind). There was no indication whether certain kinds of mods were failing at a higher rate than others, but perhaps the next report from the OCC will help us find a clearer picture. With the push for such programs really barely getting underway at the beginning of the year, we might speculate that these loan mods represent those borrowers in the worst condition at the time of a mod. As well, the earliest failures likely occurred in the markets hardest hit by home price declines, and as that situation worsened as the year progressed, it may be that these borrowers were simply less motivated to care as they sank further.”

“Successful loan mods require terms which are more meaningfully adapted to the borrower’s needs and a willingness on the part of the borrower to attempt to meet those new terms. It could be that the offered mods didn’t go far enough, or that there’s little willingness (or ability) on the borrower’s part to make even reduced payments.”

To continue reading the latest issue of Market Trends click here. HSH’s free weekly Market Trends Newsletter, an in-depth analysis of various financial markets of the week prior, is published every Monday. Email subscribers — receive it in your inbox by Friday night, so sign up today! Also, be sure to check in with our Market Trends blog for all news relating to any weekly shift in mortgage rates.

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About the HSH Blog's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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