The latest mortgage metrics report out of the OCC is reporting an increase in loan modifications coupled with surging delinquencies and foreclosures. I’ve attached the highlights:
- The number of loan modifications significantly increased. During the quarter, servicers implemented 185,156 new loan modifications, up 55 percent from the previous quarter and 172 percent from the first quarter of 2008.
- The proportion of payment-reducing modifications also increased. More than half of the modifications in the first quarter of 2009 resulted in lower monthly principal and interest payments, as servicers focused on achieving more sustainable mortgage payments. Modifications that reduced monthly payments by 20 percent or more jumped 19 percent from the previous quarter, to 29 percent of all modifications. By contrast, actions that resulted in increased payments constituted only 19 percent of modifications, a drop of 25 percent from the previous quarter.
- Modifications that reduce payments have lower delinquency rates over time. Although delinquencies on modified loans increased each month following modification, delinquency rates were considerably lower for mortgages in which monthly payments were reduced. Six months after modification, only 24 percent of the mortgages that had monthly payments reduced by 20 percent or more were 60 or more days past due, compared with 54 percent of mortgages with monthly payments left unchanged, and 50 percent with higher monthly payments.
- Seriously delinquent mortgages increased. Seriously delinquent mortgages (60 or more days past due or involving delinquent bankrupt borrowers) increased as economic pressures continued to weigh on homeowners. Prime mortgages, which represented two-thirds of all mortgages in the portfolio, had the highest percentage increase in serious delinquencies, climbing by more than 20 percent from the prior quarter to 2.9 percent of all prime mortgages.
- Foreclosures in process increased. Foreclosures in process also increased during the quarter to 844,389, or about 2.5 percent of all serviced loans, as moratoriums on foreclosures expired during the first quarter. This increase represented a 22 percent jump from the previous quarter and a 73 percent rise from the first quarter of 2008.
“While I’m very concerned about the rise in delinquent mortgages and foreclosure actions, the shift in emphasis by servicers to more sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months,” Comptroller of the Currency John C. Dugan said. “In addition, as the Administration’s Making Home Affordable program gains traction and helps offset the impact of this very difficult economic cycle, we should continue to see progress in future reports.”
“We continue to drill deeper into the mechanics of foreclosure prevention actions, thereby gaining more insight into what works,” said OTS Acting Director John E. Bowman. “This report provides a valuable roadmap for how financial institutions can best ensure that more Americans will stay in their homes.”
The report shows the continuing troubles consumers are experiencing as well as the troubles in the housing market and the contagion from what was once a subprime problem. Prime delinquencies surged 20.3% in Q1 and 165% compared with the same quarter a year ago.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.