Out of Ohio State University, and unlikely to surprise anyone (HT Mark Thoma):
Researchers found that mortgages owned by lenders were 26 to 36 percent more likely to be renegotiated than very similar mortgages that the original lenders sold to other companies, which turned them into securities.
The authors write that their study differs from earlier, conflicting studies because of their bigger sample set, which included “data on more than 34 million mortgages, making up about 64 percent of all U.S. residential mortgages”. It was collected from the the U.S. Office of the Comptroller of the Currency and the Office of Thrift Supervision:
Six months after the mortgages were listed “in trouble,” nearly half had no action taken against them by their mortgage servicers.
Even after a year, servicers had taken no action against about one-quarter of all delinquent homeowners.
About half of the in-trouble mortgages had been foreclosed or were in the foreclosure process after a year. The remaining one quarter was in some type of modification process, he said.
The most common type of modification was a reduction or freezing of the interest rate, results showed.
The article appears to be a summary of an earlier working paper by the same authors posted to EconPapers, and which also found that “affordability (as opposed to strategic default due to negative equity) is the prime reason for redefault following modifications.”
While modification terms are more favorable for weaker borrowers, greater reductions in mortgage payments and/or interest rates are associated with lower redefault rates. Our regression estimates suggest that a 1 percentage point decline in mortgage interest rate is associated with a nearly 4 percentage point decline in default probability. This finding is consistent with the Home Affordable Modification Program (HAMP) focus on improving mortgage affordability.
Their conclusion:
From a policy perspective, the federal government had the right idea with its Home Affordable Modification Program, which was designed to help struggling homeowners, he said.
“In retrospect, we know HAMP has not worked well because it wasn’t implemented properly. But the economic idea was sound – reduce the servicers’ transaction costs so they have an incentive to modify loans,” Ben-David said.
Related links:
The economic impact of the foreclosure slowdown – FT Alphaville
Strategic Default: Watch Elites Freak Out To the Trend That Isn’t Happening. – Rortybomb