haapai
Junior Associate
Character
Joined: Dec 20, 2010 20:40:06 GMT -5
Posts: 5,871
|
Post by haapai on Oct 3, 2019 11:58:16 GMT -5
Apparently the rate at which permanent mortgage modifications default is on the upswing and the performance of mortgages that have been modified multiple times is deteriorating rapidly.
It's a dense read and quite a scary one. The author's conclusion is that permanent mortgage modifications have been disguising some big losses that will eventually have to be realized.
Unfortunately, the article gives relatively very little historical context for permanent mortgage modifications and their default rates. Does anyone here know more about how common permanent mortgage modifications are or were? I'm sorta getting the impression that they weren't very common until the last recession but language used in the article is wishy-washy.
|
|
tskeeter
Junior Associate
Joined: Mar 20, 2011 19:37:45 GMT -5
Posts: 6,831
|
Post by tskeeter on Oct 4, 2019 0:53:46 GMT -5
This smacks of being a scare piece. Emphasis on the portion of bad loans that continue to be bad loans despite repeated modification. Quotes statistics from extended time periods. Implies that this will trigger a financial crisis.
My question. What portion of the total mortgage marketplace do these modified mortgages represent? If we’re talking something like 1% of all mortgages, we have the media trying to make a mountain out of a mole hill again.
|
|
Tiny
Senior Associate
Joined: Dec 29, 2010 21:22:34 GMT -5
Posts: 13,357
|
Post by Tiny on Oct 4, 2019 12:28:29 GMT -5
I read this article earlier. I got a "scare tactic" vibe from it, too. I do believe there are some financial institutions holding these loans. I do believe that they are a problem for those institutions. I don't think it's enough to cause a nation wide housing bubble pop like we saw in 2007-2010 (depending on your area).
I strongly suspect the majority of foreclosures/shortsales on distressed mortgage holders happened pre-2013. 2013 is when home prices started to rise (in a majority of places - yes, there are some places that will NEVER rise/recover - just as there are some houses in hot markets that will never sell for what they did in 2004-2007 top of the market). I think the article is about modified mortgages for the 2007-2013 time frame. I suspect many of the modified mortgages have ended well (for financial institution and for owner). This article is about the ones that didn't - and I suspect it's a minority.
That said, I can see where if we head into a recession - the institutions with these modified mortgages (that keep going into default OR where the house is so far underwater it will never be above) will have loses/difficulties. I suspect any money to be made on these mortgages has already been made - the institutions have had 10 -12 years of getting atleast some payments.
On the Other Hand... I wonder if maybe these mortgages have been bundled and sold and if these securities are lurking in pension funds... That could be the problem this article is attempting to point out.
|
|
resolution
Junior Associate
Joined: Dec 20, 2010 13:09:56 GMT -5
Posts: 6,937
Mini-Profile Name Color: 305b2b
|
Post by resolution on Oct 4, 2019 12:38:55 GMT -5
I was curious so I looked around to see what percentage of outstanding mortgages had been modified, and I couldn't find solid numbers anywhere. However the source of the data in that article was the OCC quarterly report, and they are reporting that 96.1 percent of all outstanding mortgages are current, so I don't think it is nearly the issue that the article implied. www.occ.treas.gov/news-issuances/news-releases/2019/nr-occ-2019-110.html
|
|
haapai
Junior Associate
Character
Joined: Dec 20, 2010 20:40:06 GMT -5
Posts: 5,871
|
Post by haapai on Oct 4, 2019 19:02:15 GMT -5
Yes, I did get some definite Chicken Little vibes while reading it and I never got any sense of the scope.
OTOH, I'm the daughter of an accountant and I grew up with multiple warnings regarding how bad record-keeping and wishful thinking resulted in COD customers with substantial account balances being reported as current when their older balances were almost certainly uncollectible, I also own a house that I would never have owned had it not been for the last housing crash and I have a pretty good idea of what a dip in housing prices does to the persons living in them, their neighbors, and the physical house itself. (None of them are good.)
I was very much hoping that the next recession would not include a repeat of the last housing disaster, but now I have my doubts.
Does anyone else share my frustration with metrics that mix good and bad outcomes? Paragraphs like this one kinda drive me nuts.
Of these modified mortgages, 47.3% of them were still current at the end of the first quarter of 2013. The rest were either seriously delinquent, in the beginning of foreclosure proceedings, had already been foreclosed, or were no longer in the portfolio of the servicer.
It's impossible for a lay person reading that paragraph to understand what "no longer in the portfolio of the server" means and the number or percentage of non-current mortgages that fit in that category. These mortgages may have been foreclosed on so long ago that no records of them exist. They may have left the portfolio as short-sales. They could have left the portfolio because the owners sold or refinanced them, which would have been victories but they being counted in the same category as the problem children.
Is there a technical term for a statistic that mixes bad and good outcomes like this, other than "craptastic" or "opaque"?
ETA: There are some other possibilities for what "no longer in the portfolio of the servicer" might mean that I did not list earlier. The mortgage could have been sold, possibly with a discount that reflects its default risk, which is generally good, at least from the perspective of the servicer. On the other hand, there are quite a few ways in which the mortgage could be no longer in the portfolio of the original servicer that granted the permanent modification but still come back to haunt the grantor of the mortgage modification. (I've got my doubts regarding the stability and independence of non-bank mortgage servicers like the outfit that currently holds the servicing rights to my mortgage.)
|
|
Tiny
Senior Associate
Joined: Dec 29, 2010 21:22:34 GMT -5
Posts: 13,357
|
Post by Tiny on Oct 4, 2019 21:47:59 GMT -5
I was very much hoping that the next recession would not include a repeat of the last housing disaster, but now I have my doubts.
The last housing disaster was based mostly on 100% financing of properties (usually a combo of 80% of value fixed rate mortgage with a 20% of value fluctuating rate HELOC. ) That, coupled with the buyer stretching to make the payments - because "in no time at all the property will appreciate in value and could then be refinanced into a 30 year mortgage with a manageable payment".
In addition all that easy money caused houses to sky rocket in price - which meant many poor souls bought houses they couldn't afford for astronomical amounts - with the hope that they could do nothing and sell them for a profit within a year or two. And at the very end were speculators buying run down houses with 0 down hoping to do nothing to the house and sell it for a profit to the next speculator...
I'm bottomfeeding investment properties now - and run down houses are pricey. And no one is buying and then flipping the run down house without doing a full rehab (sometimes crappy jobs... but still sinking 30 or 40K into the crap job). I do see houses that were purchased in 2010/2011 for low prices being offered at premium prices - even though they haven't had anything done since 2002 thru 2005 when they were sold during the run up. So, they have A/C and furnances at the end of their lives, Roofs beyond their 1/2 life, and little to no other upkeep maintenance done to the house itself. Who wants to pay top dollar for a house - and then have to put a roof on it with in a year or two?
Today's housing market is NOT the same as the years that built the bubble. The way houses are being bought/sold is not the same as at the peak of the bubble either. That's NOT to say that real estate doesnt wax and wane. The 3 areas I watch are at a peak... and when the recession hits, I fully expect house prices to drop some - but they aren't gonna plummet 50% to 80% like they did when the housing bubble popped (2006 -2008 depending on where the house was). I think most homeowners have 20% or more equity in their properties. If the housing market drops 20 ror 30% people probably won't walk away from their loans in droves.
|
|