Loan Modification Success Report, The Truth Is Far Worse

Loan Modifications has been the flavor of the month in the finance news sections for some time now and August was no exception. We started the month with the government’s report on mortgage services participating in the government’s loan modification program. The administration reported how unsatisfied it was with the progress and that mortgage providers had been inconsistent in their efforts to modify loans which is a polite way of saying they were doing a rubbish job.
The Treasury department also reported the number of loan modifications and trial modifications that were being carried out. The picture was not great but it is very likely that the real picture is far worse.

The Treasury department prepared its figures by comparing the number of trial modifications each bank or service provider had started with the number of loans eligible for the loan modification program. All is clear up to there. The glitch occurs when you realize that only borrowers that are 60 days or more behind in their payments are included as “eligible borrowers”. The real number of borrowers in desperate need of a loan modification is much larger.
Is this a small discrepancy with the real story, just a different way of describing the situation? Hardly.

The Making Home Affordable program included in its data homeowners that had already defaulted or will likely default “imminently” which includes those that have not missed a payment yet. This is very different when compared with what the Treasury department did and the discrepancy is by no means small. For instance in the first quarter of this year 8.8 percent of mortgages were 60 days or more delinquent but there was an additional 3.25 percent between 30 and 60 days according to the Mortgage Bankers Association National Delinquency Survey. If we counted those that were just on the edge of becoming delinquent the picture just gets worse and worse.

The Treasury Department reported that 9 percent of the eligible borrowers were being helped by the loan modification program. However the real figure is really between 5.9 percent and 7.8 percent if we use the Making Homes Affordable figures.
The change in accounting methods is caused by what the Treasury Department wanted to highlight; the number of desperate homeowners that are already in trouble that are being helped. Up to now over 235,000 homeowners are involved in a three month trial modification and the goal is to reach 500,000 by November.