Servicers Struggle, And So Do Modified Mortgages

Several weeks ago, I wrote about the difficulty servicers are having keeping up with modifying all of the troubled mortgages out there. Today, the Wall Street Journal has a pretty nice piece about that ongoing saga. I think there are two big takeaways: servicers continue to struggle, and so do the homeowners that got those modifications.

Luckily, the WSJ included two easy to read charts that speak to these observations. Here's the first one, which shows several major servicers, and their progress in mortgage modifications:

Clearly, some are doing better than others. Yet, those that are doing well, are actually performing pretty decently. It's important to realize that servicers would not want to modify all mortgages -- so you'll never have anywhere near a 100% success rate here. For example, if someone has an incredibly underwater mortgage and is also newly unemployed, there are probably no modification terms that a bank would agree to. As a result, 30% to 45% seems almost impressive to me, especially given the incredible workload they're under.

The other point is that re-defaults -- when homeowners with modified mortgages default again -- look pretty ugly. Here's a chart from the WSJ, showing which of those newly modified mortgages are at least 60 days delinquent:

Re-default is a huge problem, because it means those homes should have just undergone foreclosure instead of modifying their underlying mortgages. After all, if those borrowers default again, the modification merely delayed the inevitable. This might indicate that the modification efforts are more focused on getting all troubled homeowners to modify, without really determining who can successfully manage those modification terms.

With servicers struggling under an incredible workload, I would suggest they prioritize modification efforts to target homeowners with the greatest likelihood of successfully paying modified mortgages. By worrying about the best candidates first, many of the modifications servicers don't get around to making probably would have failed anyway.