The number of homeowners who defaulted on their mortgages even after securing cheaper terms through the government's modification program nearly doubled in March.
Julia R. Gordon, senior policy counsel for the Center for Responsible Lending in Washington, says she expected the number of post-modification defaults to continue to rise.
“It’s definitely alarming to look at those statistics,” Gordon says. “The current model for modifications doesn’t necessarily produce sustainable results,” Gordon told The New York Times.
Figures from the departments of Treasury and Housing show that 2,879 modified loans were ended since the Obama administration’s loan modification program began last fall. Only 37 of these endings occurred because the loan was paid off.
About 7 million households are now behind on their mortgage payments, and even after modification, $61 out of every $100 earned by the borrower goes to servicing debt.
The Treasury Department’s report said it could not explain the growing number of defaults, almost all of which apparently occurred because borrowers were unable to make the new lower payments.
“Even among borrowers who receive five-year modifications, some will eventually fall behind on their payments and once again face foreclosure,” the report says. “In the final reckoning, the goal (of helping four million homeowners) seems small in comparison to the magnitude of the problem.”
A year after U.S. consumers pared back spending, they have started to spend more freely again, in part because the high rate of mortgage defaults has lowered consumers’ debt burden, The New York Times reports.
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