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Loans that have been modified since 2014 are redefaulting at faster rates than those that were modified in prior years, according to a new report.
Seventy-five percent of the loans that redefaulted did so within the first two years after receiving a loan modification, according to analysis of Fannie Mae loan data.
“Relative to prior years, recent trends indicate more modifications made to borrowers that have prior failed loan modifications, lower payment reductions, and lower credit scores,” says Samuel So, Fitch Ratings director.
Fitch analyzed about 700,000 loans, with cumulative unpaid principal balances of $135 billion, that had been permanently modified between 2010 and 2015.
Fitch’s study found that loans modified more recently had lower average FICO scores and a higher number of prior modifications, which appeared to be related to higher redefault risk.
In 2009, the average FICO score was 655 and only 1 percent of loans had multiple modifications. By 2015, the average FICO score was 592, and 34 percent of the loans had multiple modifications, the Fitch Ratings study showed.
Source: “Recently Modified Loans Redefault at a Faster Pace,” National Mortgage News (Feb. 9, 2017)
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