Comptroller of the Currency John C. Dugan said today that new data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months.
“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today.
Not surprising. I’ve known a number of people over the years that lived at the ragged edge, financially. Always had nice houses, nice cars, nice clothes, took spectacular vacations and ate out all the time…and not at Cracker Barrel, either. As soon as any breathing room appeared on the plastic, another major purchase was made, invariably of a depreciating asset.
I can’t remember where I read it, but it was a look into what happened to people who took out “bill consolidation” loans against their homes to pay off short-term debt. Almost universally, the result was a larger mortgage payment and a quick return of the credit card debt, but this time with no way out and insufficient funds to make both payments.
It’s not a problem of money, it’s a problem of expectations and self-control.
Lots of people have maintained many credit cards so that they could stay ahead of, in their view, a time of calling to account. And it’s not just those who can take spectacular vacations, but those of more limited means. Maybe the types who buy a big new home entertainment system. Now, all of a suddent, new credit cards are harder to get.