Summary
1. Only works if the loans are re-performed. 2. Can be a rat in the snake waiting to pass. 3. Can make the situation worse with failure to reperform 4. There are good and bad modifications
Analysis
Putting a stay on foreclosures only builds the ultimate debt of the borrower (moratoriums included) unless you aggressively rework the mortgages. I am not advocating principal write downs (unless absolutely necessary and as a last resort) but extending term and adjusting interest allows for affordable modifications that keeps the home value up and another piece of inventory off the market downward spiral. if you do not aggressively work out the loans then it merely becomes a rat in the snake that will pass as the moratorium expires (example California moratorium). RBS has a chance to set a pattern, I hope they follow through or it is merely a deferment with worse consequences and bigger losses when the foreclosures are continued.To those whose mantra is modifications fail, they do when they are actually payment increases and do not take into account the borrowers ability to pay. Each modification should be a traditional re-underwriting of the loan.
