Mortgages Keep Falling Behind in Q309
[Update 1: clarifies HAMP statisitics] Overall mortgage performance continues to decline, but re-default rates on modified loans are improving, according to a report from the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS). The report provides performance data on 65% of all outstanding mortgages in the US, totaling 34m loans and $6trn in principal balances. The overall mortgage performance continues suffer as borrowers face rising unemployment and falling home values. The percentage of current performing mortgages dropped 1.5% from the previous quarter to 87.2%. Seriously delinquent mortgages – those behind 60 or more days – climbed to 6.2%, a 16.7% increase from Q209. New foreclosure actions took place on more than 369,000 loans, and of all the mortgages studied, 3.2% fell into the foreclosure process. The report also showed delinquencies creeping into prime mortgage pools. The percentage of prime mortgages falling into serious delinquency reached 3.6% in Q309, up 19.6% from the previous quarter. On the servicing side, large national banks and thrifts implemented more than 2.4m loan modifications, trial period plans or payment plans between Jan. 1, 2008 and Sept. 30, 2009. Servicers took more than 680,000 home-retention actions in Q309, up 68.7% from the previous quarter. Under the Home Affordable Modification Program (HAMP), the 13 largest national banks and thrift servicers initiated more than 273,000 trial modifications during Q309. In addition to HAMP trials, servicers started more than 121,000 trials under their own plans, a 100% increase from Q209. Through HAMP, the US Treasury Department allocates capped incentives to servicers for the modification of loans on the verge of foreclosure. According to the latest reports, more than servicers issued 30,000 permanent modifications under the program. The re-default rate on modified loans seems to be improving for newer vintages. Of the most recent modifications made in Q209, 18.7% were 60 or more days delinquent three months after the modification, compared to 33.3% in Q208 and 30.7% in Q109. “This lower three-month re-default rate may be an early indicator of sustainability for loan modifications that reduce monthly payments,” according to the report. The report draws a direct line between lower re-default rates and modifications that significantly reduce the monthly payment. For modifications that reduce the payment by 20% or more, 14.9% re-default after three months, compared to 19.9% on reduced payments beteen 10-and-20%. When a monthly payment is reduced by less than 10%, more than 22% of those loans re-default within three months. Loans with unchanged payment plans re-default three months later 49.9% of the time. “While lower payments reduce monthly cash flows to mortgage investors, the payments may also result in longer term sustainability of the payments,” according to the report. Write to Jon Prior.