Why Healthy Bodies and Healthy Marriages May Be More Relevant To Slowing Foreclosures Than Interest Rate Adjustments

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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.

According to Countrywide's servicing department, just 1.4 percent of its loans that defaulted in July 2007 defaulted because of "payment adjustment". 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.

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. 

Source
Top Subprime Servicers
The Wall Street Journal Online
December 7, 2007