Are mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. lenders waiting to modify loans even under Obama’s Making Home Affordable LoanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds.. Modification Plan because they’re hoping the loans will self-cure?
Historically, loans that are less than 30 days late will often “self-cure.” That’s the industry jargon term for a homeowner who figures out how to catch up on his or her mortgage payments and start payment them on time each month.
In fact, the majority of mortgages that are delinquent even up to 60 days will often self-cure. Lenders know from years of watching these mortgages self-cure that homeowners would like nothing better than to ensure their home stays out of foreclosureForeclosure is the legal action taken to extinguish a home owner's right and interest in a property, so that the property can be sold in a foreclosure sale to satisfy a debt., so they do whatever it takes to make these payments on time.
But once a mortgage is more than 90 days delinquent, few homeowners are able to catch up on their payments. That’s why loan modifications originally targeted those homeowners who had fallen so far behind even with Obama’s Making Home Affordable Loan Modification Plan. Once they’d fallen 90 or more days behind they’d never be able to catch up without some sort of help.
But the conventional wisdom isn’t working right now – and I think a lot of that has to do with how deep and how painful this Great Recession has been, and how much home values have dropped.
If your home was worth $225,000 and you have a home loan for $200,000, but now your home is worth $125,000 and your still owe the same amount, you may think twice about taking on a second job (if you can find one) in order to earn enough cash to catch up with your mortgage payments.
After all, in some places you know it may be up to a year before the bank actually forecloses on your house and takes possessionPossession is being in control of a piece of property, and having the right to use it to the exclusion of all others. – you might think you’ll be able to stay in the home for free for all that time.
(Of course, it isn’t really for “free” but maybe this kind of thinking explains the stomach-churningChurning, also known as twisting, is an attempt by an unscrupulous agentAn Agent is an individual who acts on behalf of a consumer. A real estate agent represents a buyer or a seller in the purchase or sale of a home. Licensed by the state, a real estate agent must work for a broker or a brokerage firm. An insurance agent helps a consumer purchase an insurance policy. Insurance agents are also licensed by the state. from an insurance company to cancel your existing policy and replace it with a new one, drawing down your cash value (called "juice" in industry jargon) to pay for it. This activity generates additional commission for the agent and may result in your having to pay more down the line. It is also a word used to describe the actions of a stock broker who continually buys and sells for an account, churning profits for the broker oftentimes eating up whatever profits might be there for the consumer. drop in the delinquent mortgage cure rates.)
It also doesn’t help that the longer it takes to complete a loan modification (and the big box lenders are taking months to make something happen), the more likely someone will lose a job, get divorced, get sick or have something else happen to dampen their earning prospects. Loan modifications take time. In some cases months and months go by before borrowers get an answer from their lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate.. In spite of the best attempts under Obama’s Making Home Affordable Loan Modification Plan, the process is still painfully slow.
According to a new survey from Fitch Ratings, Ltd., the cure rate for prime mortgage loans has plummeted from an average of 45 percent from 2000 to 2006 to 6.6 percent. The cure rate for Alt-A loans (think “no-doc,” 100 percent, or interest-only loans) has dropped from 30.2 percent to 4.3 percent. For sub-prime loans, the cure rate has fallen from 19.2 percent to 5.3 percent.
These are dreadful numbers. And, according to Fitch, without President Obama’s Making Home Affordable mortgage loan modification programs, the cure rates would be even lower.
You can’t fix these kinds of problems with an $8,000 first time home buyer tax creditA Tax Credit is an amount by which tax owed is reduced directly. In other words, a dollar-for-dollar amount is subtracted directly from the taxes you owe. or even a $15,000 home buyer tax credit for all home buyers as some people are proposing.
What will fix the cure rate is helping people find jobs that pay them a decent wage, like building much-needed roads and bridges, or retraining them for a job of the future, perhaps in technology or a green industry.
That’s where a good chunk of the remaining stimulus money might need to go.
Find out more about delinquent mortgages and loan modifications