People who defaulted on their initial mortgages and did "loan modifications" to avoid foreclosure are now back to defaulting on their loans.
Recent data suggests that many borrowers who received help with mortgage modifications earlier this year tended to re-default on their payments, a top U.S. banking regulator said on Monday.
"The results, I confess, were somewhat surprising, and not in a good way," said John Dugan, head of the U.S. Office of the Comptroller of the Currency, in prepared remarks for a U.S. housing forum.
"Put simply, it shows that over half of mortgage modifications seemed not to be working after six months," he said.
Dugan said based on data collected from some of the biggest U.S. institutions, like Bank of America, Citibank and JPMorgan Chase, home foreclosure starts fell 2.6 percent in the three months ended in September.
However, data which is to be issued by the OCC and the Office of Thrift Supervision (OTS) next week could throw cold water on a push by some U.S. policymakers for loan modifications as the key remedy for the ailing U.S. financial and economic crisis.
Dugan said recent data showed that after three months, nearly 36 percent of borrowers who received restructured mortgages in the first quarter re-defaulted.
At one time, banks used to have what they called "underwriting standards". Those standards didn't come about arbitrarily. It wasn't like a pack of bankers sat around in a circle, doing bong hits and said, 20 percent down is a good idea. Maybe a borrower's debt to income ratio shouldn't exceed 25 percent.
No. They developed those standards through years of trial and error. Errors they had to eat when they screwed up.
The fact is many people who received credit in this past decade weren't ready to be responsible borrowers. They could modify these loans yet again and guess what? The defaults will be right back to where the are today.
As a society, we keep wanting to believe that all people need is an opportunity and they will succeed. Unfortunately, even Jesus understood that not everyone wants to be healed.