Fitch Ratings has put out a report examining the effectiveness of loan modifications in terms of keeping homeowners out of foreclosure. Their findings make the initial reports of massive failure rates seem like the good old days. Reports that had come out earlier in year found that fifty percent of modifications done in the first half of 2008 had gone back into default by year-end. The new study by Fitch estimates that between 65% and 75% of modified subprime loans will become 60-days or more delinquent again within a year of the loan modification.
Modifications can combine lower interest rates, maturity date extensions, changing from adjustable to fixed interest rates, and the reduction of principle. Of the four, principle reductions are statistically the best way to ensure the long term success of a loan modification. According to LPS Applied Analytics, modifications that included principle reductions have a 25% lower refault rate than those without a reduction. Fitch’s numbers concurred with those numbers, finding that modifications with principle reductions had a 40% to 50% chance of a refault. Not surprisingly, Fitch found that modifications where loan principle was increased due to missed payments and penalties being added to the backend of the loan had a refault rate of 60% to 70%
At issue is whether homeowners going it alone in negotiations with lenders are getting enough in the way of concessions to make their modifications sustainable. The do it yourself modification typically takes into account only the homeowners income in relation to a modified payment. Lenders, who are trying to mitigate their own losses during the negotiation process, aren’t volunteering to give more than what the homeowner is negotiating for during the process so the modification ends up buying time but not much else. Additional consumer debt and other expenses are often not factored in to the negotiations leaving the homeowner with a continuing monthly payment deficit which then leads to re-default.
One solution to this problem is for the homeowner to retain professional counsel to both analyze the total financial picture and to negotiate the loan modification according to what is going to work within the specific circumstances of the homeowner. The objectivity and experience of a professional negotiator will undoubtedly yield better a better outcome for the loan modification, which in turn will result in a sustainable monthly payment.

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The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter.   Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.