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Published: September 2008

Some mortgage modifications are actually increasing home loans

Public Citizen's Consumer Law and Policy Blog has posted a study revealing a wide disparity in the types of mortgage modifications being offered to homeowners.

Read the Public Citizen blog report

Below is an excerpt from the blog report posted by Public Citizen contributor and Valparaiso University School of Law Assistant Professor Alan White:

I have just posted a paper on SSRN reporting on loan-level mortgage modification data from subprime mortgage servicer monthly reports. The gist is that voluntary mortgage modifications are not reducing principal debt, and are in fact increasing it, and that many modifications are not even reducing monthly payments. In addition, whether a homeowner gets a modification, and what kind they get, depends a great deal on who their servicer is.

The data in the report covers about 100,000 subprime mortgages, about 4,000 of which were modified in the last twelve months. The most common modifications are interest rate reductions to reduce the payment, interest rate freezes on ARMs, and recasting of arrears and reamortization, which increases principal debt and monthly payments.

From July 2007 to June 2008 losses on foreclosure sales have steadily increased, month after month, while the number of mortgages paid in full through refinancing and sale have dwindled to the point that foreclosure sales exceed the number of prepayments. The combined effect of all this is that subprime mortgages, which used to last only 3 to 5 years, will now take many more years before they are foreclosed or paid off, leaving homeowners with debt in excess of home values and payments in excess of their repayment ability, and needlessly prolonging the crisis.

For More Information

Public Citizen Consumer Law and Policy Blog

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Congress   ♦   Housing   ♦