A prominent credit rating agency has published a report on lending trends in Florida and across the country. One area of interest was the default rate for loans that were modified. The study states that a loan modification that took place since 2014 was more like to re-default faster than a loan that was modified earlier.
The agency cites that of those loans that re-defaulted, 75 percent of them defaulted within two years of their modification. Experts say that this percentage is reflective of the credit history of the consumers who need their loans modified. They typically have lower credit scores and may even have had a prior loan modification that failed.
There were four drivers listed as the major factors in re-defaults. First, there lower credit scores were associated with the loans more recently modified. Another factor was the number of prior modifications. Over one-third of the loans had multiple modifications in 2015, up from only 1 percent in 2009. The other two drivers mentioned were the loan-to-value ratio and the amount of payment reduction.
The modification programs had various levels of success. The Home Affordable Mortgage Program, or HAMP, had the lowest re-default rate. The standard modification program had the highest rate, while the streamlined program was in the middle.
Florida residents often seek to modify a loan to avoid bankruptcy or foreclosure on their homes. Given the findings in this study, it is crucial to structure a loan modification so that an individual is successful in following the terms of the new plan. Many seek the advice of an experienced attorney to provide guidance as they go through this process.
Source: nationalmortgagenews.com, “Recently Modified Loans Redefault at a Faster Pace“, Jacob Passy, Feb. 9, 2017