I did an interesting interview with Marketplace Radio on why mortgage mods fail so often.


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APM Marketplace


How to get off the mortgage treadmill
Marketplace Public Radio, October 23, 2009




Bob Moon: This economic mess started with the subprime mortgage crisis. People couldn’t afford their mortgages, banks tightened credit, the rest is history, right? Well it would be. Except we’re still there. The ratings agency Fitch said this week that over half of all mortgages modified to help people stay in their homes go right back into default in a matter of months. Seems we’re on a mortgage treadmill and that does not spell relief for the economy.

Barry Ritholtz of Fusion IQ joins us now. Welcome to the program.

Barry Ritholtz: Thanks for having me.

Moon: I’m visualizing trying to hold back a big landslide that just keeps coming and coming and then, just when you think you have a control, there’s another slide somewhere else. What are these numbers really mean for regular people and for the broader economy?

Ritholtz: Well, understand what we’re looking at when we’re talking about a mortgage modification. We begin with a home owner, or as some people call them “home ower,” that’s in a house, but doesn’t have a whole lot of equity. The house is now worth considerably less than what they paid and their mortgage, which they were hoping to either refinance or somehow work around, has become an owner’s burden.

So they’ve been unable to get out from behind too much house. And so you end up with a series of incentives and a series of steps designed to prevent foreclosures from taking place. But the bottom line is, many people are in homes they just can’t afford and there’s not a whole lot you can do to prevent a foreclosure, unless you reduce the amount that owed. And very few banks seem to be willing to do that.

Moon: And if these number’s don’t change, then we are just going to continue to see more and more defaults?

Ritholtz: The foreclosure picture looks fairly negative for the next, let’s call it 12 to 24 months. We’re now absorbing about 300,000 foreclosures a month. That’s a pretty severe number compared to historical norms, about three million a year. I wouldn’t be surprised to see another five million foreclosures before housing really stabilizes and gets healthy.

Moon: I thought that we had all these programs in place though, that were supposed to not just stop foreclosures, but to keep them from happening in the future

Ritholtz: What the data has shown us is that when they enter one of these modification programs, that on average, somebody — without real delinquency in their mortgages — who go through a modification, about 50 to 60 percent of those people end up 12 to 18 months back in behind the eight ball, behind their mortgage. And people who go into a mod, already delinquent 30, 60, 90 days behind, they’re going into foreclosure at very high rates, at 75 to 80 percent.

Moon: So this number over half of all modified mortgages going back into default after only a few months. Should that be telling us something?

Ritholtz: Yeah, it’s telling us that modifications aren’t going to work. Unless you’re going to make the house appreciably less expensive for that home owner, for most people that are going through modifications, it’s just a temporary stop gap. It doesn’t solve the underlying problem. These minor changes around the margins — lower interest rates a little bit, reduce the payment slightly, because we’re extending the term of the mortgage — they’re not addressing the fundamental issue, which is, literally millions of people ended up buying houses that they can no longer afford

Moon: What I hear you saying is “Let’s stop postponing the inevitable.”

Ritholtz: You know, it wouldn’t be the worst thing in the world to just tear the band-aid off, let house prices get back to their normal levels, relative to traditional metrics. I know it sounds cold and if you’ve ever spoken to anybody who’s gone through a foreclosure, it’s a miserable, miserable experience.

But from a macro perspective, looking at the entire country, it would be healthy for the economy, to see foreclosures go forward, to see home prices normalize. That would lead to more housing activity and that helps to create jobs. Until we start house prices get to a point that’s going to cause more activity in the real-estate sector, the whole economy is just more or less muddling along.

Moon: Barry Ritholtz with the online research firm, Fusion IQ, the author of “Bailout Nation.” Thanks for joining us.

Ritholtz: Thanks for having me.

Category: Bailouts, Credit, Media

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Marketplace: Failing Mortgage Mods and Foreclosures”

  1. nertopia says:

    I think it’s important to note what really drove the economic meltdown and the sub-prime mortgage mess. The media and conservative pundits like to point the finger of blame at the many people who should not have been given loans, sub-prime, ARMs or whatever exotic flavor of mortgage was put together by the mortgage lenders.

    However the key point is this:

    It was not the poor shiftless borrowers that bought us the economic mess. It was Wall Street pushing the lenders to sell as many mortgages as possible so they could sell securitized packages of these loans. These packages were then sold and leveraged as high as 30-1. It is estimated that there were approx 1.4 trillion dollars worth of these mortgages out there but they were leveraged to the tune of (est. approx. 140 trillion dollars)… by Wall Street and the banks.

    The bailout money from all the different branches of the Government (est. approx. 14 trillion dollars) was never intended to save main street, loosen the credit, modify mortgages but to save Wall Street and the Banks a**es.

    They made a bet and lost and we the people are on the hook to bail them out… If the money had gone directly to mod all the loans that were made to main street EVERY SINGLE loan could of been modded and the foreclosure rate would have been kept very low. The money left over would also have paid for health care of every single American as well. We have been ripped off. The money was given to the banks to sustain the status quo of wealth distribution in America. Everyone else is just left to swing in the wind… Which is why I have to disagree with the data. Yes modded loans do not have the retention rate under the current rules and regs. BUT if they had drafted rules to deal with the mess at the beginning pre-bailout we could of saved millions of people from losing their homes. Instead we gave money to the guys that leveraged these mortgages beyond the hilt…

    When is there going to be some legal action taken against the very people who put millions of people out on the street because of their greed and avarice? Never my friends… because the horse is out of the barn… and the people who watch over the barn are in the pocket of Wall Street and the Banks…

  2. M says:

    Certainly governments can’t buoy the real estate market forever. But, slowing the deflation and deleveraging processes down some might soften the landing. I wonder if it is a bad thing if government action has indeed added 5% to market prices (http://blogs.wsj.com/developments/2009/10/24/uncle-sam-adds-5-to-prices-of-homes-goldman-says/) even in a purely economic sense. And, the social issues are non-trivial. Too, removing the government damper on this might be less akin to “pulling the band-aid off” and more like letting the whole powder keg burn at once.

  3. super_trooper says:

    BR, you’re an expert on house mortgages and house prices?


    BR: Not sure what you mean by expert, but I have been studying real estate and mortgages and writing about its impact on the economy for a long time. I guess you must have missed the 4000 real estate related posts ove rthe past 7 years.

    And, I have been a whole lot more right than most in all of them.

    See this from 2006:

    Real Estate and the Post-Crash Economy

  4. SINGER says:

    I just became a home-ower….

  5. heh heh

    As long as you have some equity and put some money down !

  6. jc says:

    RE update from Mark Hanson “Mr Mortgage” – great insights in detail focused on CA