75 Percent Avoid Foreclosed Home Listings but Will Redefault

An estimated 65 to 75 percent of homeowners whose mortgage loans were modified to save them from foreclosed home listings are expected to redefault within a year, according to studies by New York City-based ratings firm Fitch Ratings.

The company based its projections on data that showed decreasing disposable income, rising job losses and some actions by borrowers aimed solely at taking advantage of the federal government foreclosure prevention programs and not really to save their houses from foreclosed home listings.

Federal and state officials have been providing programs to cut down the number of homes being added continuously to foreclosed home listings in an effort to keep families in their homes and stabilize banks, housing markets and communities.

Fitch managing director Diane Pendley said that loan modifications clearly help homeowners who are relieved by significantly reduced monthly payments, but oftentimes, homeowners cannot sustain the already reduced payments because of other debts and increased family expenses.

Pendley also added that data supports the contention that more homeowners are voluntarily leaving their homes and allowing them to get included in foreclosed home listings because of falling home prices.

According to Fitch Ratings, about seven percent of mortgage loans nationwide which were packaged into mortgage-backed securities without support from federal regulators have been modified during the period ending April 30. The percentage included 18 percent of the total subprime loans originated.

Over 1.6 million mortgage loans have been restructured since Hope Now started its loan modification program in 2007. Washington, D.C.-based Hope Now is an alliance of mortgage lenders, certified counselors and nonprofits working to cut down homes posted in foreclosed home listings.

In addition, the Office of Thrift Supervision also affirms the contention that many modified mortgage loans will redefault. Based on its data, about 41 percent to 46 percent of all mortgage loans modified or refinanced will relapse.

Economists have been pointing to the bleak employment situation, the continued growth of foreclosures and the decline in home prices as main factors for difficulties that are bearing upon homeowners’ abilities to sustain their payments.

On Tuesday, the Standard & Poor’s/Case-Shiller Home Price Index in March showed that home price levels in 20 major metro areas dropped more steeply than expected.

Fitch said that it would take months before it can fully incorporate the impact of loan modification trends in its ratings and the impact of revisions in federal programs to cut down properties in foreclosed home listings in its redefault rates.

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