Sunday, 12 July 2009

Do loan mods reduce delinquency rates?


If you get into trouble on a mortgage, and you are American, and you are offered a loan modification, it is unlikely to help much. The following data is from the Big Picture. Barry explains:
On the left we see the re-default rates of homeowners who were current on their loans when they first defaulted (sounds odd, I know, but these tend to be people who can afford their homes but who subsequently ran into economic problems). The data tells us how many of them have defaulted again 10 months after their loans were modified.

The adjacent table (at right) shows the same thing, only this time with homeowers who were seriously delinquent prior to loan mods. As you would imagine, their re-default rates 10 months after their loans were modified are considerably higher. These are often the people who could barely afford their home (or not at all).

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