It's only common sense that troubled homeowners who have their loan payments reduced with a modification are less likely to re-default.
According to a banking regulators' report released Monday, only 18.7% of borrowers who had their loans modified in the second quarter were delinquent three months later.
Regulators attribute the nearly 40% drop in re-defaults to their March directive that urged financial institutions to make sure the loan modifications they do are affordable and sustainable.
According to the report issued by the Office of Thrift Supervision and the Office of the Comptroller of the Currency, the percentage of loan modifications that decreased payments shot up to 78.3% in the second quarter, up from 53.5% in the first quarter.
In the past loan servicers were really of no help to homeowners. Many of them would just add late fees to loan payments and past due interest on the end of the loan and not lowering the actual amount owed. So homeowners who couldn't make their mortgage payment weren't able to make their modified payment either. The difference now is servicers are not only lowering interest rates, but extending the terms of the loan and even reducing the principal balance making the loan more affordable.
Are better loan modification terms the answer to improving the economy? Leave us a comment and let us hear what you think.
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