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Many modified mortgages will default again, Fitch Ratings projects

May 29th, 2009 11:57 AM by Lehel Szucs

Many modified mortgages will default again, Fitch Ratings projects

Most nontraditional home loans -- especially subprime mortgages -- may become delinquent within a year anyway, study says.
By E. Scott Reckard
May 27, 2009
Modifying nontraditional mortgages will succeed for many people, but most such modifications will end up in default within a year, a major ratings company predicts.

The Fitch Ratings study examined subprime mortgages, jumbo loans and little-documented home loans that Wall Street bundled up to back mortgage bonds from 2005 through 2007. Those were the last years of the housing frenzy before delinquencies skyrocketed, home prices plummeted and investors' appetite for such "private-label" securities evaporated.

    "Loan modifications hold clear value for many homeowners provided the modified payments are sustainable, but more often than not, reducing the home payments to an affordable level may not be enough to rescue borrowers who are overextended on other credit and expenses," said Diane Pendley, a managing director at Fitch.

    The study said borrowers who are current on their loans are angry that others who took on too much debt and missed payments are benefiting from lowered interest rates, extended repayment terms and other modifications. There is also evidence that some able borrowers are choosing not to honor their obligations, the study said.

    About 7% of U.S. home loans packaged into securities without government support were modified through April, including 18% of subprime loans, Fitch said. It expects the pace of modifications to increase.

    The study excluded loans guaranteed or owned by Freddie Mac and Fannie Mae, the giant government-controlled mortgage firms, and home loans held on the books of lenders.

    About 22% of the nearly $10 trillion in U.S. mortgages currently outstanding are held in the private-label mortgage pools that Fitch studied.

    Posted in:General
    Posted by Lehel Szucs on May 29th, 2009 11:57 AM



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