OCC/OTS: Payment-Reducing Mods Jumped In Q1

uencies and foreclosures on first-lien mortgages continued to increase during the first quarter of this year, but loan modifications also increased, and the trend continued toward more sustainable modifications with lower monthly payments, according to a report issued by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). The report, based on data from loan servicing companies that manage 64% of all first-lien U.S. mortgages, shows that the number of loan modifications significantly increased. During the quarter, servicers implemented 185,156 new loan modifications, up 55% from the previous quarter and 172% from the first quarter of 2008. The proportion of payment-reducing modifications also increased, the regulators say. 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% or more jumped 19% from the previous quarter, to 29% of all modifications. By contrast, actions that resulted in increased payments constituted only 19% of modifications – a drop of 25% from the previous quarter. Modifications that reduce payments have shown better recidivism rates, the report adds. Six months after modification, only 24% of the mortgages that had monthly payments reduced by 20% or more were 60 or more days past due, compared with 54% of mortgages with monthly payments left unchanged, and 50% with higher monthly payments. Seriously delinquent mortgages (60 days or more past due or involving delinquent bankrupty borrowers), however, still 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% from the prior quarter to 2.9% of all prime mortgages. Foreclosures in process also increased during the quarter to 844,389, or about 2.5% of all serviced loans, as moratoria on foreclosures expired during the first quarter. This increase represented a 22% jump from the previous quarter and a 73% 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 says. "In addition, as the [Obama] 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." New to the first-quarter report is information on the types of actions taken to modify loans. It shows that servicers most often change multiple terms when modifying mortgages to achieve sustainable modifications. Capitalization of delinquent interest, fees and advances, combined with interest-rate reductions and extended maturities, were the predominant combinations during the first quarter. Interest-rate and payment freezes, principal reductions and principal deferrals were less prevalent. Data also showed a continuing emphasis on preventing avoidable foreclosures to keep families in homes and mitigate losses, as servicers continued to implement more home retention actions than home forfeiture actions. Prime borrowers received about twice as many home retention actions as home forfeiture actions, while subprime borrowers received more than seven times as many. The report covers the performance of 34 million loans totaling more than $6 trillion in principal balances from the beginning of 2008 through the end of the first quarter of 2009. The impact of the increase in modifications, particularly those with reduced monthly payments, will be seen only in future data, the OTS and the OCC say. Likewise, data presented in this report do not reflect modifications made under the administration's Making Home Affordable program, which was announced in March and began to be implemented after the reporting period, as well as changes to the Hope for Homeowners program. SOURCES: O


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