Mortgage lenders and servicers have been reluctantly doing loan modifications mainly by paring back interest rates and stretching terms, thereby managing to reduce borrowers' monthly payments to some degree. But obviously that strategy is not working as well as many had hoped for. Restructured home loans keep defaulting at an alarming rate.
DBRS, a debt rating agency, now figures that more than half of them are two or more months behind or sink into foreclosure inside six months from the mortgage modification. Clearly, that's hardly the way to resolve the home loan mess. To get to the core of the problem a new direction in thinking has to be found. Actually a doable solution has been debated for some time now, but mortgage lenders haven't put their arms around the idea much. It's called principal reduction.
Home loan providers and servicers have been pulled kicking and screaming into looking at the idea again, and slowly they seem to be warming up to it. Recent statistics prove that. In the first quarter of 2009 3% of mortgage loan modifications included principal cutbacks, reports confidently DBRS. In the second quarter the number grew to 10% and in the third it stood at 13%. The trend is obvious. It appears the mortgage industry is finally seeing the light, but it sure took them a long while to get there.
Las Vegas valley - including Henderson, Mountains Edge, Silverstone Ranch, Rhodes Ranch, Summerlin and Spanish Trail - mortgage recipients are glad to see this development. Scores of them are seriously underwater and without principal cutbacks they would have little incentive to make payments even if they could afford them. To many it just doesn't add up to keep pouring hard-earned money into a losing asset. If the mortgage lenders here bring the loan balance all the way to market, they'd have a lot of eager homeowners sending payment checks in. And the currently high foreclosure rate would be drastically improved. If they do so only part way, it would predictably still prevent a host of mortgage borrowers from going into default.
Should this trend continue it would begin turning the pummeled mortgage and real estate markets in Las Vegas and nationally around in a decisive manner. At this stage in the game this is about the best way to go about it.