40% of modified mortgages in trouble
TEXT OF STORY
Bob Moon: We’re ending the year the way it began in one very significant and very discouraging way. Despite the Obama administration’s big push to keep people in their homes through mortgage modifications — and even though lenders have cut payments for millions of borrowers — a fresh government report suggests the effort may be falling short. According to regulators, 40 percent of people who get a significant reduction in their monthly payments still fall behind. Here’s Marketplace’s Amy Scott.
AMY SCOTT: Four years ago landscape architect Bill Donnelly took out an interest-only loan to buy a house in Washington, D.C. The interest rate was fairly high, but he and his wife figured they’d refinance.
BILL DONNELLY: Being a first-time homebuyer, I knew nothing about buying a home. And everyone seemed to think that, you know, I wasn’t getting in that far over my head.
Then the bottom fell out of the housing market. And the plan to refinance fell apart. Eventually Donnelly turned to mortgage modification. His lender temporarily cut his monthly payments by close to 20 percent. He’s waiting for a permanent deal. But it may not be enough.
DONNELLY: Things change in life, and we recently had a second child. And so our cost’s going up in childcare. So we’re still going to struggle with whatever they come back with.
The report out today from two bank regulators says close to half of borrowers who get a break from their lenders still struggle. The Obama administration is pressing banks to make more modifications permanent.
But Christopher Thornberg with Beacon Economics says that approach doesn’t take care of the biggest problem. These homeowners hold huge amounts of debt with little or no equity. Meaning they have no cushion to fall back on.
CHRISTOPHER THORNBERG: What you need to do really is help these people clear the books, start fresh, buy a home they could afford using a proper mortgage product, and that means probably moving them out of the homes they’re in right now.
But an even bigger wave of foreclosures could threaten the recovery.
Mark Zandi is with Moody’s Economy.com.
MARK ZANDI: As long as foreclosures continue to rise and modification efforts aren’t really working, there’s a really good chance that housing prices will start declining again. And nothing really works well in our economy with falling housing values.
Zandi predicts people will lose almost two-and-a-half million homes to foreclosures and short sales next year.
I’m Amy Scott for Marketplace.
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