CHESSNOID

According to Reuters:

WASHINGTON, Dec 22 (Reuters) – The rate of U.S. home mortgage borrowers defaulting after their loans are modified is rising and shows no signs of leveling off, U.S. banking regulators said on Monday.

The data showed that after six months, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent. After three months, 19 percent were 60 or more days delinquent or in the process of foreclosure.

“One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months,” John Dugan, head of the Office of the Comptroller of the Currency, said in a statement.

The number of delinquencies rose across all loan categories, although subprime loans had the highest default rates. At the same time, nine out of 10 mortgages remain current, the joint report by OCC and the Office of Thrift Supervision said.

Some U.S. lawmakers and the head of the Federal Deposit Insurance Corp have called for a more aggressive effort by lenders to modify mortgage terms to help keep people in their homes.

I think most people realize that they have a big asset that is losing value and continues to do so every month. No one really wants to continue to pay on something that keeps losing.
When people start getting laid off or have their incomes reduced, they start to reduce expenses. The biggest expense for most people is their housing, so it makes sense for them to find cheaper housing so they have enough left over to eat and pay their utilities.
I think in the past if the asset was gaining value, people would unload them and take their profit because it would be substantial. Now that no longer exists the motivation is different. It has become about survival and making ends meet with what you have.
I think what Congress and even the FDIC want to do is noble which is to keep people in their homes. A problem they are facing is falling values keeps the pace of foreclosures increasing and demotivates people from wanting to keep their homes. Even the programs they are putting out to keep people in their homes really is more for the benefit of the lenders vs the actual homeowners. Granted the investors don’t have to make any concessions, but the homeowners don’t have to continue making payments either. Personally, it doesn’t make sense to stay in the homes with the exotic loan modifications of lower rates, longer terms, and balloon payments. Most of that just benefits the lenders in the short and long term.
The foreclosures will start to flatten when the values of the houses start to become attractive and reasonable. Propping it up artificially with low rates or exotic terms will only lengthen the time it takes to get the market back balanced. Remember all the rate cuts pushed the housing bubble pendulum to its limit and now that it is swinging back in the other direction with equal force. The momentum of the swing needs will naturally slow itself down.