Obama wants interest rates lowered — to as little as 2%

By Alan Zibel
The Associated Press

E-Mail

Comments (0)

Text Size:

tool goes here

Lenders are ramping up efforts to avoid home foreclosures, but a report by bank regulators says more than half of borrowers who get help fall behind again.

More than 50 percent of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision said Wednesday.

The results were better among those who saw their payments drop substantially.

About one in three borrowers whose monthly payments were reduced by 20 percent or more had fallen behind again within a year. That compares with more than 60 percent for borrowers whose loan payments were left unchanged or increased.

The report highlights a significant challenge for the Obama administration's plan to tackle the foreclosure crisis, backed by $50 billion from the financial industry bailout fund.

High rates of redefault have plagued loan modification programs, and critics argue that there is little point in modifying loans that will fall into trouble again.

Officials in the Obama administration, however, counter that their plan requires the lending industry to make far more substantive changes — for example, reducing a borrower's interest rate to as low as 2 percent — than was common in the past.

The administration's effort got off to a slow start but has picked up speed in recent months. As of last month, about 360,000 borrowers, or 12 percent of those eligible, have signed up for three-month trial modifications. They are supposed to be extended for five years if the homeowners make their payments on time. There is no data on redefaults within the plan.

Traditionally, most lenders have offered payment plans that allowed borrowers to catch up on missed payments. But those modifications often do not involve an interest rate reduction and result in a higher monthly payment.

The bank regulators' quarterly report shows that lenders were shifting their focus to modifications that reduced borrowers' payments. They made up nearly 80 percent of modifications in the April-June quarter, up from about half in the first three months of the year.