Although borrowers who modify their loans are likely to default again within a year, the redefault rate is falling, the Wall Street Journal reported.
According to a report released by Fitch Ratings Ltd., the twelve-month redefault rate is 60 to 70 percent for subprime loans and 50 to 60 percent for prime loans not backed by the government. In June, projected rates were 65 to 75 percent for subprime loans and 55 to 65 percent for prime loans.
The report noted that 11 percent of modified subprime loans were modified again, making it hard to determine the exact number of redefaults.
According to a separate report by Moody’s Investor Services, modified loans are three times more likely to default than non-modified loans.