Foreclosure Resolution Blog

John Dugan, head of the Office of Comptroller of the Currency (OCC) recently delivered a speech outlining a “new” set of metrics they’ve been tracking on homeowners who obtain a loan modification to prevent foreclosure. While the big news in the popular press is, “How many loan modifications took place this month?” and while most politicians keep poking lenders in the ribs to do more of them, the question is, just how effective are loan modifications in preventing foreclosure?

Rather than spending a lot of time on a flowery narrative, here are the highlights of his loan modification report:

After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due.

After six months, the rate was nearly 53 percent, and after eight months, 58 percent.

The key questions he raised afterwards revolved around “Why is the re-default rate so high?” and he said that they have “begun asking our servicers in detail.”

I’ll give you the quick answer why re-default rates are so high:

because re-default rates on loan modifications have always been high.

I’ll offer a second hint to Mr. Dugan: the servicers are not going to be able to answer his questions about “Why?”

Why is that?

Because it’s not the business of servicers to track borrowers after their loan modification. The job of the servicer is to collect a debt, and to collect and produce data related to that collection activity. They’re not in the business of conducting long-term, longitudinal studies. As if they don’t have enough capacity problems as it is… sure, let’s have the servicers conduct additional studies now, and we’ll have them do it on their dime.

Dugan found the results”surprising, and not in a good way.” I’m ceaselessly amazed at how out of touch our regulators are with the industries they supposedly oversee. Not long ago, Maxine Waters was publicly admitting her lack of fundamental knowledge. Then, Sheila Bair came out with her “innovative”  loan modification approach: Do step 2, THEN step 1. Apparently, those results have been lackluster.

Next, they’re planning “streamline loan modifications.” This constant striving for “economies of scale” has them pointed 180 degrees in the wrong direction.

Did you ever wonder to yourself, “Is anybody paying attention… ANYONE?!?!” A person that I have a lot of respect for recently said, “90% of the people in any given field are mediocre, 5% are truly dangerous, and only 5% are truly masterful.” We have a tendency to think that this rule doesn’t apply to our leaders, highly paid executives, and regulators.

This “news” isn’t news at all. It’s been mentioned most recently by Credit Suisse in their loan modification report, and earlier in the Boston Federal Reserve paper on loan modifications.

I take a lot of pride in the fact that I spend a LOT of time figuring out how to solve problems for my clients. The people who are supposedly in charge of “solving” the foreclosure crisis clearly don’t have the same values.

For God’s sake, if you don’t know how to do your homework, then pay someone to do it for you!

There are SEVERAL key reasons why the recidivism rate on loan modifications is so high. One of the reasons that over 94% of my clients are still in their homes 12 months later is because I started investigating these issues a long time ago.

If you want to roll the dice, or play the equivalent of “Foreclosure Roulette,” then go ahead and call your lender, or Hope Now, and see how it goes. Heads, you lose the home in 12 months. Tails, you get to keep it. Or, you could call my office and follow a proven path to long-term loan modification success.

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This entry was posted on Tuesday, December 9th, 2008 at 6:56 pm and is filed under Loan Modification, Prevent Foreclosure. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.