Subprime mortgage holders will probably default, even after refinancing


The Obama administration's stimulus program has given incentives to mortgage lenders and homeowners under water to modify their loans, rather than foreclose. The effort has had some success, but a new study suggests that these modifications are just delaying the inevitable for many. More than half of reworked highly leveraged mortgages are likely to end up at least 60 days delinquent within the next year, according to Fitch Ratings; for subprime mortgages, that figure could reach 75 percent.

By the end of May, approximately seven perecnt of the private-label home loans from 2005 to 2007 that were bundled in mortgage-backed securities had already been reworked, the report notes, including 18 perecnt of subprimes. Bank of America (BAC) alone has modified 50,000 mortgages as part of its settlement to compensate for the predatory lending of Countrywide Financial. Close to 29 percent of the reviewed loans couldn't be modified and ended up in foreclosure.

Originally published