The HOPE NOW Coalition released its mortgage work out data this morning. For the first time, the number of actual modifications exceeded repayment plans which is a step in the right direction for homeowners in need.
Why is this trend toward modifications vs. repayment plans important? A repayment plan “allows the borrower to become current and catch up on missed payments that are appropriate to the borrower’s circumstances, which involves deferring or rescheduling payments but the full amount of the loan is expected ultimately to be paid and within the original contractual maturity of the loan.”
If you read that carefully, you see that the only way for a borrower to repay the full amount within the original time period would be to increase monthly payments at some point in the future, if not today. Yet the data shows—lowering monthly payments now is the key step to making a modification successful. Seems obvious, but that fact was overlooked in many of the programs tried to date.
Many credit unions are getting it right however. Modification data for credit unions through the first quarter is slowly rolling through our First Look program, which collects, analyzes and releases 5300 call report data weeks ahead of full reporting on NCUA.gov. For participating credit unions, there is also an upward trend in both the total dollar and number of outstanding real estate loans modified, both 1st mortgages and other lines.
Credit unions have an advantage over some lenders: the ability to look at the entire member relationship in assessing the best way to move forward on a modification. One credit union we spoke with does just this. They have been able to successfully lower total monthly debt payments in some cases just by modifying auto loans financed during the boom of 2005 when rates were significantly higher.