I’ve known for a while now helping clients with Silicon Valley Short Sales that people who were doing some form of loan modifications were getting back into trouble paying their newly modified loan payments and having to seek alternative methods to avoid foreclosure. Only thing was, I had no data to determine what that re-default rate was. Well, finally some hard data and those numbers are not encouraging.
The full article below from CNN Money.
http://money.cnn.com/2008/12/08/news/economy/mortgage_summit/
It turns out that 53% of those who received loan modification in 2008 were back in default within 6 months!
The feed-back I get from my clients who get into these re-default situations: out of desperation, they believe loan modification will solve all their problems. They agree to new terms without truly addressing the fundamental reason why they got there in the first place: their financial situations had not changed. It seems they were not making drastic cut-backs in their lifestyles to address problem and only bought a little time before the same vicious cycle returned. Let me state I am not making any judgment here as I don’t wear their shoes, I am only reporting what I hear.
What’s my observation or lesson here? These loan modifications will not solve your problem if your financial situation is not changing. Presumably for 47% of the people, who have not re-defaulted, it is working out for them so far and I can only surmise that is the case because something in their financial situation has changed.
Steve Mun, Silicon Valley Realtor
www.stevemungroup.com
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