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I have heard many sell side analysts claim the new government rules regarding loan mods to be bullish for banks. This actually makes plenty of accounting sense, since although most mods fall back into delinquency anyway, the bank gets to reclassify the delinquent loan as current and may get a refinancing fee that goes straight to the income line item to boot. Then I took a closer look. Some banks simply are not participating. I know for a fact that Citibank has simply stop modifying loans in many, if not most, cases.


We have looked into the possibility of the loan modification program allowing for shift of losses by banks to following periods. As of now, it appears that the program has not been receiving interest from lenders due to absence of real benefits to lenders in the program. Following are our findings:

The increase in program allocation to incentivize mortgage lenders could prove to be in insufficient given no tangible benefits visible from the program.