Barclays: Why Repeat Mods Have Been Making a Comeback

The pace of modifications is slowing compared to the 2010 peak, but repeat modifications are on the rise, according to a recent research report from ""Barclays"":http://group.barclays.com/home. Not only are mods returning for seconds, but researchers from Barclays also found remodifications perform more poorly than first-time mods.

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In the report, Barclays revealed about 40 percent of recent subprime and 10-20 percent of other sector modifications are remods.

Barclays gave three reasons for the rise in repeat mods: first-time mods did not reduce payments enough, leading to higher re-defaults; servicers are taking advantage of HAMP principal reduction alternatives; and servicing transfers are leading to an increase in remodifications.

The report explained that many early mods redefaulted in 2011, with some having very small or no payment reductions when first modified.

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However, even loans with significant payment reductions were in need of a second mod.

""Somewhat surprisingly, we find that a quarter of the remods are offered on loans that have already been offered a payment reduction of more than 40% in their prior modification,"" the report stated.

The report also revealed about 75 percent of remods occur after 18 months of the previous modification, and about a quarter of those remods were given to borrowers who were current.

Barclays also stated nonbank servicers such as ""Ocwen Financial"":http://www.ocwen.com/ and ""Nationstar Mortgage"":https://www.nationstarmtg.com/ tend to have about twice the share of remods compared to bank servicers. Banks, on the other hand, are more likely to pursue a short sale, according to the report.

Thus, as more loans get transferred to nonbank servicers, Barclays expects the rate of remodifcations to increase.

The report also noted repeat mods actually perform more poorly than initial mods, with the remod re-default rate at about 55 percent 18 months after the previous modification compared to a first-time mod re-default rate of about 40-45 percent.

""This is an indication that remodification is a negative signal on the borrower's equity and/or ability to pay,"" Barclays explained.

The report added servicers who are likely to remodify may also be less selective when offering mods.