Analysts believe loan mod redefaults could hit 70% – Zach Fox
In a recent report projecting the level of shadow inventory in the housing market, Standard & Poor’s analysts noted that they assumed a 70% redefault rate on loan modifications in the study.
Diane Westerback, S&P’s managing director of global surveillance analytics, told SNL that the previously reported 30% to 40% redefault rates typically only count borrowers after two or three months of payments. A year after the modification, Westerback expects redefaults to hit between 60% and 70%.
“I’ve always taken the position that if a guy pays for a year, he’s really made it. If he makes a few payments, you don’t really know,” she said.
Fitch Ratings on June 16 issued similar projections, albeit only for subprime and Alt-A loans in RMBS. The rating agency projects modifications on those product types to redefault at a 65% to 75% range, while prime loans in RMBS are expected to redefault at a rate of 55% to 65%.
With so few modifications likely to be long-term successes, HAMP is a clear failure. What will the government try next?
June 18, 2010
Banking and Finance, Home Economics