Mortgages not worth saving

For weeks we’ve been hearing about the need to help homeowners who were slammed by the mortgage meltdown. All kinds of programs have either been initiated or are being considered – government programs as well as those from the lenders themselves. But what we’re starting to learn is that many of these mortgages are beyond saving. A study out this week found that 53 percent of the folks who had their loans modified to make payments more affordable wound up re-defaulting within six months. That pretty much matches what I found in researching an article on the foreclosure mess that appears in this month's Los Angeles magazine.

Mortgage brokers are often singled out for nudging customers into making bad decisions—and that certainly happened—but many borrowers were also unaware or unwilling to consider their financial situation. “There are borrowers who made $5,000 a month but put down $10,000 on the loan application because they wanted what they wanted,” says Bruce Solomon, a senior loan officer with Los Angeles Neighborhood Housing Services, a nonprofit that sponsors housing fairs like the one in Reseda. He estimates that seven out of ten home owners he sees cannot be helped—that is, they won’t be able to afford a loan even if it’s adjusted downward.


Despite lawmakers’ wanting to help borrowers, more than 50 percent of the loans that get modified are likely to go through redefault after two years, according to Joseph Mason, professor of finance at Louisiana State University’s E.J. Ourso College of Business. For lenders, whether it’s a bank or the federal government, the process is like doubling down on a shaky bet. What this does is delay the inevitable by extending the foreclosure process through at least 2011 or 2012. That leads to more absentee owners and more empty houses, which lowers the worth of nearby real estate and results in additional foreclosures.

Patt Morrison got into this yesterday on her KPCC show. Here's the audio link.

More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent stories:
Letter from Down Under: Welcome to the Homogenocene
One last Florida photo
Signs of Saturday: No refund
'I Am Woman,' hear them roar
Bobcat crossing

New at LA Observed
On the Media Page
Go to Media

On the Politics Page
Go to Politics
Arts and culture

Sign up for daily email from LA Observed

Enter your email address:

Delivered by FeedBurner

Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
LA Observed on Twitter and Facebook