danajohnhill.org | Hard Times Come Again No More

On NPR this morning, House Minority Whip Eric Cantor said, “the default rate on mortgages that have been modified thus far is very high”.  This statement caught my attention because, first, I have been saying for quite a while that getting people out of ARMs and into 30-year fixed-rate loans is the best way to prevent foreclosures, and, second, it is intentionally misleading.

Last week I read about two people in south Florida who had their mortgages modified.  One woman’s interest rate dropped 11% when her terms were changed.  Another man saw no change in his monthly payment because the bank added so many fees and penalties.  She kept her house; he went into foreclosure after all.

Rep. Cantor is right that the default rate on modified mortgages is high, but only if your definition of “modified” is very broad:

“It’s becoming more and more clear to us that if you do real modifications the default rate is significantly lower”, said Tom Miller, the attorney general of Iowa, who has led a group of state officials pushing the industry to modify more loans. “They shouldn’t be called modifications if people pay more or approximately the same”.

The facts are that genuine modifications keep 75% of borrowers in their homes, and allow them to stay current.  If the “modifications” Rep. Cantor criticizes fail, it’s because they aren’t modifications at all.

Filed under: Current Events, Politics, Rantings on February 25th, 2009