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Preliminary reports and observations about the sum and substance of so-called mortgage loan modifications are causing some concern over the disturbing revelations.

By some reports, loan modifications were a total and absolute failure. For example, in a MarketWatch report dated December 8, 2008, Ronald D. Orol reported: "According to the OCC statistics, which looked at loans modified in the first quarter and second quarter of 2008, 36% of borrowers had re-defaulted by being more than 30 days past due and after six months, the rate was roughly 56%. After eight months, 58% of borrowers had re-defaulted." (Note: OCC is Office of Comptroller of the Currency)

If these statistics are even close to being accurate, they expose a much more serious problem than the defaults themselves.

That problem is this: This astronomical default rate suggests that these so-called "modifications" were nothing more than a temporary band-aid in nature; since any banker will tell you that such a default rate for a "new" mortgage portfolio is astronomical in nature (much worse, in fact, than the default rates which triggered the sub-prime mortgage crisis). These "re-defaults" suggests that these soon-to-default-again modifications were allowed pursuant to an ulterior motive or objective.

The bottom line is simply that it is all but impossible that these mortgage loans were modified with the intent that these same homeowners would be, thereby, put in a position to keep their homes and go on in life.

Let's just hope that these modifications were not, in fact, designed to make sure these homeowners COULD NOT keep their homes - and, perhaps, serve to show that loan modifications are not the best use the TARP funds.

It would also be interesting to see how many of the re-defaulted loan modifications were made while the "foreclosure gun" was still pointed at the borrower's head.

- Ed Smith, Publisher
The EHS Letter Manual