Why Healthy Bodies and Healthy Marriages May Be More Relevant To Slowing Foreclosures Than Interest Rate Adjustments
As the largest sub-prime loan servicer in the country, Countrywide handles payments for 11.90% of the sub-prime market. That’s a massive $120 billion worth of loans.
The sheer size of that portfolio is why I am publishing the above chart. Normally, data from one lender wouldn’t be enough for a clean sample, but Countrywide is the largest servicer of loans and it holds that title by a longshot.
According to Countrywide’s servicing department, just 1.4 percent of its loans that defaulted in July 2007 defaulted because of “payment adjustment”.
That’s a tiny number.
The publicly available presentation also noted the other reasons why its homeowners defaulted on their mortgages:
- A decrease in household income led to 58.3 percent of all foreclosures
- Medical bills and/or illness led to 13.2 percent of all foreclosures
- Divorce led to 8.4 percent of all foreclosures
- Inability to sell a home led to 6.1 percent of all foreclosures
- Death caused 3.6 percent of all foreclosures
If we reverse the statistic, we find that 98.6 percent of Countrywide’s sub-prime defaults in July 2007 happened for reasons other than an adjustable rate mortgage.
Flash forward to December 2007.
The Bush Administration announced its plan to save qualifying sub-prime borrowers from foreclosures by “freezing” their mortgage interest rates. If Countrywide’s chart is even close to being accurate, the HOPE NOW program will amount to pouring perfume on a pig.
Instead of freezing sub-prime mortgage interest rates, it could be argued that a better way for HOPE NOW to slow the foreclosure rate among sub-prime borrowers would be to institute a national healthcare system specifically for sub-primers, or to outlaw sub-prime borrowers from divorce.
It’s improbable (and tongue-in-cheek), but considering the self-reported reasons why sub-prime mortgage holders default on their mortgages, health and marriage are much more relevant.