Deadbeats Hardest Hit: Washington Post Discovers Redefaults

by Tim Cavanaugh

Kudos to the Washington Post for giving A-1 below-the-fold treatment to something the vast majority of American homeowners would be hard-pressed to imagine: After more than half a decade of taxpayer spending to bail out bad mortgage borrowers, nearly a third of these folks go bust again.

But did the Post have to get the story of redefaults precisely wrong?

“Already, nearly 30 percent of those who qualified for relief have defaulted again,” writes Dina ElBoghdady. “And roughly 800,000 borrowers who remain enrolled in the government’s flagship program will see their mortgage interest rates gradually rise starting this year — eventually increasing payments by more than $1,000 a month in some cases, according to a recent federal analysis.”

This is not news — or rather it’s the reverse of the English ElBoghdady has put on the ball.

Redefaults have actually been going down — as yardsale economics suggest they would — as real estate has become reinflated and low interest rates have made walk-or-sell decisions more complex for bad borrowers.

Redefaults, which have never occurred in fewer than a fourth part of modified loans, have been a feature of loan mods since federal mortgage bailouts began in earnest in 2008. By the second quarter of 2009 – the first year the Office of the Comptroller of the Currency began tracking redefaults, 55 percent of modified mortgages went delinquent again within a year, according to the OCC’s Mortgage Metrics Report [pdf].

By the same time in 2010 [pdf] that figure had dropped to 38.7 percent. In 2011 [pdf] the redefault rate hit 34.5 percent; and by the first quarter of 2012 [pdf] — well into the reinflation of the real estate market — it was still 31.1 percent.

By third quarter 2013 [pdf], the last Mortgage Metrics report, 25.8 percent of people who got a refi had gone belly-up again within a year.

For ElBoghdady the tragedy is that real estate hasn’t been reinflated enough:

And while home prices have climbed in the past two years, many borrowers continue to owe more on their mortgages than their homes are worth, making it difficult to sell their properties or refinance their way out of trouble.

The 1 Percenters are also to blame:

[S]ince the [Home Affordable Mortgage Program]’s launch in 2009, the average household income has been flat for all but the highest earners.

The Post focuses on HAMP refis, bringing in Treasury Department official Christy Romero to wonder out loud if HAMP needs to be given a 99-year lease.

“Will Treasury help them get back on their feet in the same way it helped the banks get back on their feet?” Romero, special inspector general for the Troubled Asset Relief Program, wonders aloud.

So who are these people who need to get back on their feet?

ElBoghdady tracks down a sixtysomething couple for whom five years (were they even 60 when it began?) and a refinance on their second home (the first was foreclosed) have not given a sufficient heads-up to get on with their lives.

“We are living on a super-tight budget with only one car and just cannot afford any increase,” said [Barbara] Irving, a housing counselor.

That’s right America: We’re in a race to keep housing counselors in their homes. We dare not lose.

There’s also a buried lede explaining what the Obama administration gave to Wall Street that now makes it impossible to give new bailouts to the redefaultists:

HAMP has given more than $5 billion to mortgage servicers and investors as incentive to modify loans.

Picture note: Above you’ll see that Tuesday’s paper is also engaging the pressing question of getting rid of the penny. Because when you’ve debauched the money so badly that coins are almost valueless, the solution is not to stop debauching the money but to get rid of the coins.