Servicers modified 36,500 mortgages through government and proprietary programs in December 2010, down 57% from the peak of 86,500 in April 2009, according to Fitch Ratings. Fitch monitors loss-mitigation outcomes on loans bundled into residential mortgage-backed securities. The credit rating agency said not only has the amount of modifications been on the decline each month since that peak, but the workouts are becoming less about whether the borrower will stay in the home and more about “when the servicer will ultimately have to foreclose.” The agency projects that between 60% and 70% of subprime loans modified will redefault within a year. Prime loans won’t fare much better. More than half of these mortgages will redefault in one year after modification as well, according to Fitch estimates. The industry alliance of mortgage servicers, investors and counselors known as Hope Now reported a year-long trend of rising modifications, however. According to its year-end report, the more than 1.7 million modifications completed in 2010 was a 42% increase from the year before. More than two-thirds of those came through private programs, further evidence that the government’s Home Affordable Modification Program isn’t reaching as many borrowers as touted when it launched in March 2009, one month before the industry peaked, according to Fitch. “The combined efforts of HAMP and other mortgage loan modification programs have made little more than a dent in the large volume of outstanding distressed loans,” Fitch Managing Director Diane Pendley said. But the amount short sales could be on the rise. Fitch looked into the amount of loans that were liquidated as of December 2010 and found that 53% of prime loans, 34% of Alt-A and 32% of subprime sales were conducted before reaching the REO, or repossessed stage. Moving these properties that do ultimately get foreclosed is key to a housing recovery. Once these troubled loans are off the banks balance sheets and sold off the market, house prices and lending should rise again. But Fitch said that is a long way off. “Based on current and expected inventory, it will take four years to remove the backlog of properties and return the market to balance,” Pendley said. Write to Jon Prior. Follow him on Twitter: @JonAPrior
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