OCC/OTS: Principal Reductions Jumped In Q2

Foreclosure prevention actions grew by almost 22% during the second quarter of this year, according to a report released by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).

The latest OCC and OTS Mortgage Metrics Report showed that difficult economic conditions resulted in higher rates of mortgage delinquencies and foreclosures in process, which increased to 8.5% and 2.9% of all serviced mortgages, respectively. But as the Obama administration's Home Affordable Modification Program (HAMP) got under way during the quarter, efforts to assist homeowners and avoid loss were also on the rise.

Since the first quarter of 2008, these home retention actions have increased by nearly 75%.

The Mortgage Metrics Report classified HAMP trial modifications as payment plans. As a result, payment plans increased by 73.9% for the second quarter, while loan modifications declined by 25.2%. Successfully completed trial-period payment plans will be reported as loan modifications in future reports.

The percentage of modifications that reduced borrowers' monthly principal and interest payments continued to increase to more than 78% of all new modifications, up from about 54% in the previous quarter.

Also, the percentage of modifications that reduced principal more than tripled to 10%, from 3.1% in the first quarter. This trend represents a significant shift from earlier quarters, when the vast majority of loan modifications either did not change monthly payments or increased them.

As noted in prior OCC/OTS reports, modifications that reduce borrowers' monthly payments continued to produce lower levels of redefaults and longer-term sustainability than modifications that either increased payments or did not change them.

The report also found that the percentage of current and performing mortgages fell by 1.4% to 88.6% of the 34 million loans in the portfolios of reporting servicers.

Economic factors continued to adversely affect credit quality, with delinquencies up across all risk categories – prime, Alt-A and subprime. The percentage of serious delinquencies increased to 5.3% of all loans in the portfolio.

Servicers' home retention actions totaled 440,000 in the quarter, outpacing new foreclosures. New foreclosure actions remained about the same as in the previous quarter, the regulators say. Total foreclosures in process continued to grow, and reached 993,000 mortgages, or about 2.9% of the portfolio.Â

Servicers changed more than one feature of mortgages in more than 75% of modifications they made. The most common changes were reducing interest rates, capitalizing missed fees and payments, and extending the length of the loans.

New to this report are performance data on payment-option adjustable-rate mortgages (ARMs). The risks of these loans and geographical concentration caused them to perform significantly worse than the overall portfolio.

In the second quarter, 15.2% of the more than 900,000 option-ARMs in the portfolio were seriously delinquent, compared with 5.3% of all mortgages, and 10% were in the process of foreclosure – more than triple the 2.9% rate for all mortgages.

The report, produced quarterly, covers 34 million loans totaling about $6 trillion in principal balances and representing about 64% of all first-lien mortgages in the country.

SOURCE: Office of the Comptroller of the Currency


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