Thursday, June 21, 2012

Better Headline: People Who Received Mortgage Mods Still High Mortgage Risks

This article (ht @IrishTea1 on Twitter) says a great deal about what's wrong with the economy, as well as with journalism.

TransUnion ran a study which found that more than 50% of "borrowers who had received mortgage modifications were behind in payments again 18 months later."  It also found that they are more likely to keep current on debt they obtained after falling behind on their mortgages. 

Stunner, right?  Choosing not to pay your mortgage makes it much easier to keep up with your (new) car payment and your (new) credit cards.  Steve Chaouki, group VP for financial services with the credit reporting agency said that (from the article) "the analysis showed that some borrowers were still able to handle new credit, even after falling behind on a mortgage loan and obtaining a modification."

No it didn't, idiot.  It showed that people had figured out that Government Sugar Daddy would make sure that mean bank wouldn't take their house away, so, instead of keeping current on their mortgage, even after a loan modification, they decided to buy a new car, and run up some more credit card debt.

Summing up this idiocy comes this line:
The data also showed that people who fell behind on their mortgage alone remain much better credit risks than those who fell behind on their mortgage and other types of debt." (emphasis mine).

No, really?  If I only fall behind on one loan, I'm a better risk than someone who is behind on seven?  Wow, what stunning insight.  What a razor intellect.

Let's be clear on this.  TransUnion exists only to evaluate your FICO score, better known as your Credit Score, or, as Dave Ramsey likes to call it, your "I love debt score."  Therefore, it behooves TransUnion to have as many people as possible with decent FICO scores.  If everyone had bad scores, fewer people would use credit, making fewer requests for credit scores, meaning less money for TransUnion.  That does not make the study wholly flawed or irrelevant, but it does mean you should be careful when you read the analysis of the study.

One thing the article says I agree with:
In contrast with the past, he said, people are more likely to let their mortgage loan become delinquent so they can stay current on credit cards and auto loans. That's probably because people usually need their cars to get to work, he said, and because car values are currently high - unlike many people's homes, which have lost value. "People are making different choices," he said.

I just disagree that those "different choices" are a good thing.  Maybe, instead of those different choices, they could make different different choices.  Choices that don't involved taking out additional debt when you just had to have your mortgage modified, for instance.


  1. Yeah, but the point of the the program wasn't really to save anyone from being forclosed upon as much as it was a way of artificially tinkering with the market to move home prices updwards again (i.e. effectively create another housing bubble.) The housing market would likely be in worse shape they hadn't instituted this program.
    Of course that's not a defense of the program either, the market should have been allowed correct itself and housing prices fall. Once again, government chose a favored class (those already in houses) throwing those of us who rented to collect money to buy a house under the bus.

    1. You said, "The housing market would likely be in worse shape they hadn't instituted this program." I respectfully disagree. The news just came out (yesterday? today?) that the housing market has shat itself again- precisely because it wasn't allowed to correct.

      You're right about the goal, of course- recreate the bubble. But, as with so many Liberal plans, it merely substituted fake relief now for great pain later.

      As you allude, if the market had been allowed to self-correct, responsible people who'd been saving up for a house would be much better off today.

    2. Well I was flippant and short in my reply. "Worse off" is of course a vague statement. What more properly should have been said was "housing prices would have been lower had they not started this program." That's fairly undeniable. That's probably not "worse off" if you're speaking in terms of "stability" (but I was trying to get to my point in few words and speaking about price.)
      I agree on the other points.
      Listen a home is an investment, and like most investments it's subject to ups, downs, and occasionally lefts and rights. However the idiots in politics have sold us a different dream, of ever increasing house prices meaning you don't just own a home "you're creating value." (which, as proven recently, is a total crock of bull.) I remember when I started renting, and my friends said "flushing money down the toliet." Well they just sold a Condo at a 40+K loss (although they weren't underwater) (and I've had 0 maintance, can't say that for them, the 40k was just in price differences.)

  2. "but the point of the program wasn't really to save anyone from being foreclosed upon as much as it was a way of artificially tinkering with the market to move home prices upwards again" you are right tsrblke. But I don't think that the housing market would likely be in worse shape!