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Credit Rating Agency Report Says More Than Half of Loan Modifications Will End in Redefault in a Year

June 1, 2009

A study released May 26 says the majority of homeowners involved in mortgage loan modifications will end up in default again within 12 months, the Los Angeles Times reported May 27. Fitch Ratings, a credit rating agency, said that of home loans reworked by loan modifications, 55% to 65% will end up 60 days delinquent within 12 months of a successful modification. For subprime loans, that number was 65% to 75%. Sixty-day delinquencies are considered the first step toward a foreclosure; mortgage payments must be 90 days overdue in most cases before banks start the formal foreclosure process.

The agency looked only at loans that were bundled and sold as investments, which are about 22% of all American mortgages. It based its projection on a growing rate of unemployment, falling home prices and evidence of deception when the loans were made. According to a spokeswoman for Fitch Ratings, loan modifications can still be valuable assuming the modification is "sustainable" -- which means the homeowner's new monthly payment should be affordable in the long term. In a separate Times blog post, consumer advocates agreed. A spokesperson for the Center for Responsible Lending also told the newspaper that the study should have taken into account the lowered payments expected for loan modifications made through the federal Making Home Affordable plan.

As loan modification attorneys in San Bernardino County, we could not agree more than sustainability is the key. Because we work every day with troubled homeowners, we know that a substantial amount of loan modifications don't do a thing to lower monthly payments. In fact, some loan workouts add the past-due payments and fees to the principal owed, actually driving payments higher. It's no wonder that loan modifications don't work when they add to the homeowner's financial problems! Given the bad real estate market and glut of foreclosed homes for sale, we wonder why mortgage lenders aren't willing to offer sustainable loan modifications to people who qualify.

At Howard Law LLP, we negotiate aggressively with lenders to get our clients effective, sustainable loan modifications that keep them in their homes for the long term. Our Escondido loan modification lawyers represent clients from around California who need a lawyer's help to get their lenders to take loan workout requests seriously. We have successfully lowered our clients' interest rates, changed the structure of "exotic" loans to conventional loan structures and extended the terms of mortgages. If appropriate, we use evidence of predatory lending practices to convince banks that changing loans is the right move for everyone. Once a Fontana loan modification attorney is on the job, banks are far more likely to pay attention.

If you're already in default on your mortgage or know you'll be there soon and you'd like to learn more about your options, Howard Law can help. For a free, confidential consultation, please contact us online or call us today at 1-800-872-5925.