Seriously Delinquent Subprime Loans On the Rise – Data Supports Gov’t Plan

April 3, 2009

Finance

The Wall Street Journal is reporting two important conclusions based on data from the Office of Comptroller of the Currency and the Office of Thrift Supervision:

Seriously Delinquent Subprime Loans Rise from 10.75% to 16.4%

The report found that the number of seriously delinquent subprimes loans is on the rise. This means that more and more people are letting their mortgage payments go unpaid. This, of course, leads to lenders foreclosing on the properties, which leads to many unfortunate consequences: uprooted families with bad credit, as well as the potential for all types of property owners seeing the value of their property drop rapidly as more and more homes in their area become vacant.

10% Reductions in Monthly Mortgage Payments Reduces Late Payments

Not surprising...cutting mortgage payments significantly helps.

Not surprising...cutting mortgage payments significantly helps.

This news comes as the lenders are beginning to modify loans for people in danger of being foreclosed on. The lenders will be following the Obama administration’s guidelines that provide incentives to lenders if they can reduce the borrower’s mortgage payment to 31% of their income. The new data supports the administration’s claim that if the guidelines are followed, we will see fewer bankruptcies. The goal of reducing bankruptcies is key to their plan, so that the value of entire neighborhoods and areas of towns and cities does not drop substantially.

The report points out that many borrowers’ mortgages amount actually increase while working with their lenders to catch up on late payments. The lenders will often put the missed payments back into the loan, thereby increasing the monthly payments. The Obama plan attempts to help both the lenders and the borrowers break this cycle, keep the borrowers in the house and making their payments. When borrowers have fallen behind on their mortage payments, 50% of them will fall behind again within nine months if their payments remain the same or increase. The studies found that 26% will fall behind again if their mortgage rate is cut by at least 10%.

The percentage of delinquent mortgages that have had their monthly payments cut by more than 10% is on the increase. 37% of such loans had their payments reduced by 10% or more in the fourth quarter of 2008 compared to 26% in the third quarter. However the report found that 1 in 4 of modified loans actually had their payments remain the same or increase.

Email This Post To a Friend. Email This Post To a Friend.
, , ,

About Rod Holmes

Rod has been a broker working in Chicago since 2004. He has worked with developers, buyers, sellers, and as well as managing offices. He is currently a partner in Chicago Style SEO working primarily with real estate firms to improve their Internet marketing. Rod lived for nearly ten years in Japan where he owned a corporate training and executive coaching firm with clients including Hitachi and 3M Japan. He lives in Lakeview with his wife and two children. He enjoys coaching and watching his kids participate in sports, cycling, camping, and traveling in general. You can find Rod online on Twitter at @roddesu, Facebook and LinkedIn.

View all posts by Rod Holmes

Trackbacks/Pingbacks

  1. Freddie Mac CFO Found Dead of Apparent Suicide | The Chicago 77 - April 22, 2009

    […] the federal government has been working feverishly to try to fix our embattled economy, pouring billions of dollars in, they are trying to save money […]

  2. Old Post Office To Be Auctioned Off…Maybe for the Price of a Condo | The Chicago 77 - June 10, 2009

    […] and a park. They have spend a great deal of time to obtain plans, rezoning, public subsidy, and financing. Due to the current market, financing this endeavor has been a challenge. The USPS has a budget […]

  3. Mortgage rates are holding steady today, after going up late last week | The Chicago 77 - February 9, 2010

    […] life support, but I don?t foresee the federal government letting them fail, being that helping clean up the mortgage and housing mess has been central in the Obama administration?s agenda. Share and […]

  4. Fannie Mae and Freddie Mac Loan Modification Leads to Some Workouts | The Chicago 77 - February 9, 2010

    […] applies toward loans that are already government-backed. For the millions of homeowners who have subprime loans, it will not […]