Re-Default Redoux… The Debate Over Loan Mods is as Stupid as Ever.


 Here we go… coming around again…

TransUnion recently reported that after their loans were modified, only 40 percent of homeowners remained current on their mortgage payments 18 months later.  The study made headlines by reporting that after 18 months, 59.1 percent of modified loans had re-defaulted, meaning they went 60 or more days past due, and within 12 months, 42 percent had gone 60 or more days past due.

Adding to the headlines, a report by the Office of the Special Inspector General for TARP, more commonly known as “SIGTARP,” showed almost equally dismal performance for HAMP loan modifications.

In its April 24, 2013 Report to Congress, SIGTARP stated, among other things, “Of the 1.2 million HAMP participants, 306,000 have re-defaulted on their mortgages,” and went on to say that an additional “88,000 homeowners have missed payments and are at risk of re-default.”  

The report puts the cost to taxpayers for the re-defaults to-date at an intended-to-be-infuriating, $815 million.

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All of that above was from my article written this past July 30, 2013… titled: The National Debate Over Loan Modification Re-Defaults is Stupid.

So, it’s November of 2013… and here we go again with the re-default debate.  It’s Groundhog Day!  Just give me a moment… I need to lower my IQ by 80 points to continue writing about this.

Okay, I’m good to go…. but let’s hurry because I’m always afraid I’ll get stuck this way. 

This time out, the news from a quarterly report to Congress compiled by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), is that of the roughly 1.25 million homeowners whose loans were permanently modified since 2009, when the government introduced HAMP, 27 percent have re-defaulted on their modified loans.

Apparently, the SIGTARP report said that he had expressed concern to Treasury over the increasing number of homeowners defaulting on permanent mortgage modifications as far back as last April.

Or, in other words SIGTARP said to Treasury… “I told you so, betch.”

The report went on to say that roughly 29% or 184,000 homeowners who have received permanent HAMP modifications through the Troubled Asset Relief Program as opposed to through a government-sponsored enterprise (GSE) have re-defaulted… and that the cost to taxpayers for incentives paid out to investors and servicers for these modifications was $972 million.




Three months ago, TransUnion scared the heck out of everyone by reporting that basically 60 percent of permanent loan modifications re-defaulted 18 months after being modified, and 42 percent re-defaulted after 12 months.  And the SIGTARP, back then, said there was almost equally dismal performance for HAMP loan modifications.

From above… SIGTARP said:

“Of the 1.2 million HAMP participants, 306,000 have re-defaulted on their mortgages and 88,000 homeowners have missed payments and are at risk of re-default.”


So, if you add up those two numbers you get 394,000 and if you divide that number by 1.2 million, you get roughly 33 percent, which I guess, in the mind of our SIGTARP is “equally dismal” in terms of performance to 60 or 42 percent of loans re-defaulting… and do not even think about asking me to explain any of this.

And last time around, the 394,000 re-defaults, were said to be costing taxpayers $815 million.

This time out, however, it’s supposedly 27 or 29 percent of TARP modifications that have re-defaulted (184,000)… plus 26 percent of GSE HAMP that have also re-defaulted (154,000)… plus another 10 percent of miscellaneous modifications have also re-defaulted… so, 29 + 26 + 10… bringing the total re-defaulting to 65 percent, which are now costing taxpayers $972 million?

But, last time we had almost 400,000 re-defaults and it was only costing us $815 million.  This time we appear to have 65 percent re-defaults, but that would mean there are 812,500 re-defaulted loans… but it’s only costing taxpayers $972 million?

Got it.  So, I suppose I should be running the headline:

HAMP Re-Defaults Have Doubled, but They’re Costing A Lot Less Apiece?


Then the report states that the longer a homeowner remains in HAMP, the more likely he or she is to re-default, because the oldest HAMP modifications are re-defaulting at 48.3 percent… as opposed to the 29 percent, I suppose.

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Okay, so class… class… what can we learn about loan modifications from all of these numbers and percentages?  Well, we could learn that while TARP modifications re-default 29 percent of the time… and GSE HAMP modifications re-default 26 percent of the time… “miscellaneous” modifications only re-default 10 percent of the time… right?

So, there’s the answer… we need to do more “miscellaneous” loan modifications and stop all the TARP and Fannie/Freddie mods immediately?  Let’s switch everyone over from TARP and GSE to “miscellaneous” and we’ll finally have an effective loan modification program!


By George, I think we may be onto something here… why, clear the streets and let’s have a parade.  Hurray for the miscellaneous modification! 

“What kind of modification did you get, a HAMP modification?”

“No, I got a miscellaneous mod.” 

“Oh, you lucky devil you.  How’d you pull that off?  I asked for a miscellaneous mod, but Chase said I had too much income.”

“Sorry to hear that.  When do you plan to re-default?”

“Well, we were hoping to just continue paying, you know… be part of the 35 percent.”

“Good luck with that.  Keep me posted.”

“I will.  But I sure wish we had your 90 percent odds.”

“Maybe you should re-default and hope to get a miscellaneous modification next time around.”

“Good idea.  I’ll talk to the wife over dinner, she if she’s up for another round of waterboarding.”

# # #

Class… class… what else might we learn from today’s lesson in grocery store math? 

“That the people who work in our government are obtuse?”

Very good, except that “obtuse” is far too big a word to describe such small-minded people, wouldn’t you say?  What else could we call them?  Anyone?  Anyone?

“Oooh, oooh… pick me… pick me!”

Okay, Mandelman… what other word could we use here?

“Ummm… stupid?”

Well, stupid is accurate, certainly, but a little crude.  Care to try again?

“Ummm… stupid?  No, wait… I’ve got others… how about… thick-headed?  Mindless?  Deficient?  Brainless?  Dim?  Idiotic?  Moronic?  Dopey?  Half-baked?  Imbecilic?  Stolid? Witless?  Doltish?  Dumb?  Dense?  Slow?”

Okay, all very good choices… but maybe we should just stay with stupid.

“Inane?  Unthinking?  Senseless?  Asinine?”

Thank you, Mandelman, that’s enough for now.

“Out-to-Lunch?  Simpleminded? Empty-headed?  Harebrained?  Fatuous?  Batty?”

I said, that’s enough Mandelman… I think you’ve made your point… thank you.



“Okay, sorry.”


The report also apparently showed that of those that re-default, 32 percent… or some might call it a third… receive another modification, 13 percent will decide to short sale or deed in lieu of foreclosure, and roughly 22 percent will enter into foreclosure.

So, here we go again… 32 + 13 + 22 = 67.  So, the remaining third, I suppose will do what?  Sue their servicers?  Just go on living there without making mortgage payments and await the next SIGTARP report?  Buy a vowel?

I guess we’ll just have to tune in next time for the next exciting installment of… As The Loan Modification Turns… Like sludge through the underwriting department… so are the Loans of our Lives…

Or maybe one of the other SOAPS… The Guiding Fight?  As the Stomach Turns?  General Horrific?  One Mod to Give?  Move My Children?  The Tongue of the Witless?  Search for a Rental Tomorrow?  Another Hurled?





Lastly, according to the SIGTARP, three servicers are responsible for nearly 60% of re-defaulters.

And the losers are… J.P. Morgan Chase, Wells Fargo and Ocwen Loan Servicing.

But in terms of a dishonorable mention… Select Portfolio Servicing has the highest percentage of re-defaults, with 43% of its modified loans behind on payments.

SIGTARP pointed out in this latest report that it has recommended that the Treasury research whether servicers may be contributing towards homeowners re-defaulting… or I suppose, in the alternative, whether it’s just that the damn homeowners have a penchant for defaulting on loans without reason?

The SIGTARP says that Treasury should investigate in order to make sure that the borrowers are “actually getting sustainable relief from the threat of foreclosure.”

Boy, this SIGTARP is double sharp, don’t you think?  I mean, that’s remarkably intuitive of him to want to know such things… like whether the billions of dollars in incentives being paid are actually helping people, as opposed to lining the pockets of those committed only to screwing people with modifications that can’t last longer than it takes the Earth to travel around the Sun.

In fact, he may be the first to even ask such a question since Neil Barofsky walked in the SIGTARP’s shoes.  And it’s a darn good question to ask.  What’s absolutely mind numbingly amazing is that after six years of this Loan-Modification-Go-Round, Treasury would have to conduct any sort of investigation to find the answer.


Luckily for me, I’ve written about this topic about 25 times over the last five years… and probably more… so I don’t have to write about it again.  That’s the beauty of being a blogger who writes about something this stupid… after a while you can just cut and paste your responses, because it’s always Ground Hog Day when it comes to the foreclosure crisis.

Here’s what I said on this subject last time… no one listened, as usual, so why bother writing something new.

There’s no question about whether or not loan modifications work to prevent foreclosures… of course they do.  It’s just like asking whether step ladders work to help people slam-dunk basketballs.  The answer is… yes, of course they do.

Now, if it’s only a two-foot step ladder, and the person is only five feet tall, then that step-ladder might not work… but you wouldn’t describe that situation as, “step-ladders don’t work to help people dunk basketballs,” right?  Of course a step-ladder helps someone slam dunk a basketball… but it has to be a high enough step ladder.


The term loan modification today is just a synonym for, “reducing the amount of someone’s mortgage payments.”  I know there are some who don’t agree with that, but they are simply not thinking people.

Bank in 2009, I had a conversation with a banker-type from Credit Suisse about this issue and he was making the point that in some instances, loan modifications result in the borrower’s payment increasing, as opposed to decreasing.  I replied that those instances should not be considered “loan modifications,” and he asked, “Well, what should we call them?”  

And I said, “I don’t know… how about ‘payment increases?’”

Do you want to know why I’m so sure that that the term “loan modification” means reducing someone’s mortgage payment?

It’s simple.  Because if I were to line up a million people in this country and ask each one whether “loan modifications” make one’s mortgage payments go up or down, every single one of them… or damn close… would say, “down.”  If we’re going to have to start debating the meaning of words in the English language, then we’re really a lot farther away from finding a solution to foreclosures than anyone thinks.

So, now here we are, it’s 2013 (AGAIN)… and we’re apparently still having the same debate based on the same type of vague and ambiguous data being reported by government agencies and large data-driven companies that ends up in a debate over the question: If more than half the loans modified re-default in 18 months or less, does that mean loan modifications don’t work?

I can’t be the only person who sees how stupid this debate is, can I?  Loan modifications absolutely work… if you design them to work.  Just modify payments to $1 a month and I guarantee no re-defaults.  Get it?

My last words on this topic… until next time.


Do you really not know the answer to these and other related questions?  Because if you’re the lease bit unsure, I’d be willing to come to D.C. and straighten the whole thing out for you and your staff.  It can’t possibly take more than a couple of hours, even taking into account a couple of breaks in the action.

Of course loan modifications are effective at stopping foreclosures… but not when they are granted inside a process more secretive than was employed by the Manhattan Project.  Have we learned nothing over the last four years?  Do we have some sort of national learning disability?

The simple fact is that living in a home while not making mortgage payments is stressful and unpleasant.  You never know what tomorrow will bring and I can’t imagine many homeowners willing to intentionally endure that sort of uncertainty.  And that is to say nothing about the unpleasantness of applying for a loan modification.

Who would go through that joyful experience knowing that they would re-default and find themselves back in foreclosure within a year and a half?  I’ve personally heard homeowners say that they’d rather go through chemotherapy than apply for another loan modification.

Our country’s “Great Recession,” it would seem to me, would have to be the most obvious reason for borrowers to re-default on modified loans.  Long-term unemployment has only gotten longer in terms of its term, and under-employment, which is when someone gets a job making significantly less than their prior job, has become near endemic.

Those are the sorts of factors, along with life events like illness, injury, or divorce, that could clearly lead to re-defaults in significant number.  And you must know all of this, right?


So, are we anywhere close to stopping the charade?  Or need we continue to act as if we’re entirely unsure of what’s going on all around us… and has been going on for the last six years straight, as we continue to pretend that stimulus is recovery and that real estate is coming back.

HAMP is a government program, right?  Right.  I know it’s a government program because no one in the private sector would ever come up with such a wonky acronym.  So, if it’s a government program, perhaps the government could actually step into it a bit and take a look at what goes on with it when people apply for a loan modification.  Like, if Social Security was run like HAMP, some senior citizens would be out for blood.

Maybe you could get the CIA to weigh in on how you could secret shop Wells Fargo… that’d be illuminating, I can assure you of that.


Or how about this… every time it’s determined by a court in this country that a homeowner was seriously mistreated in the loan modification process, you, the Treasury Secretary and Ed DeMarco all have go pick up trash on the freeway wearing orange vests for the weekend.  I bet that would modify some behaviors in a damn hurry.

You wouldn’t be asking Treasury every six months to investigate something that Treasury CLEARLY DOES NOT WANT TO INVESTIGATE.  If they did, they probably would have found time to do during the past SIX YEARS, don’t you think?

No matter… you’ll just continue ignoring me… and I’ll just keep screaming until a thousand people start emailing you my articles on this subject and eventually perhaps you’ll put your foot down and change something just to avoid dying from embarrassment.

It’s not rocket surgery, Mr. SIGTARP.  You and I could fix this mess in a jiffy as soon as you or someone else gets up the courage to fix it.  Until then, I am most sincerely your…

Mandelman out.

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