Two pieces of recent mortgage-default news I thought you might want to know about:
First, the travails of FHA, the go-to place for borrowers with small down payments. The Federal Housing Administration insures FHA mortgages, which means it's on the hook if those loans go bad. Now its market share has shot up to about 30 percent -- thanks in large part to the death of subprime and no-money-down options -- and it's being swamped with problem loans. Some borrowers are missing payments immediately.
As The Wall Street Journal reports, this has raised the specter of another taxpayer bailout -- or changes for future borrowers:
If defaults drain the FHA's insurance fund, the Obama administration will have to decide whether to ask Congress for taxpayer money or raise the premiums it charges to borrowers. That decision will be spelled out in President Barack Obama's 2010 budget, Housing and Urban Development Secretary Shaun Donovan told lawmakers.
The other news: a glimpse into what works when lenders modify mortgages to try to keep borrowers from ending up in foreclosure.
The Office of the Comptroller of the Currency and the Office of Thrift Supervision, which track two-thirds of U.S. mortgages in quarterly reports, said "re-default rates" on modified loans last year "were consistently lower for modifications that resulted in lower monthly payments."
When modifications decreased monthly payments by more than 10 percent, only about 23 percent of the loans became seriously delinquent six months later. By contrast, some 51 percent of the loans in which payments remained unchanged were seriously delinquent after six months. The comparable number for loan modifications in which payments increased was 46 percent.In more than half of loan modifications last year, lenders kept payments the same or increased them, the agencies said. But more loan mods came with decreased payments by the end of 2008.