OCC: Loan Modifications Rising Faster than Delinquencies?

Mortgage delinquencies are continuing to rise, but so are efforts to keep Americans in their homes.

The Offices of Comptroller of the Currency (OCC) and Thrift Supervision (OTS) released their latest Mortgage Metrics Report on Tuesday, showing that home retention actions increased 22 percent during the second quarter of 2009 and have increased by nearly 75 percent since the first quarter of 2008. 

Mortgage delinquencies increased to 8.5 percent of all serviced mortgages during the second quarter of 2009, an increase of 11.9 percent and foreclosures in process increased to 2.9 percent, 16.9 percent more than the previous quarter.

The report covers 34 million mortgages totaling $6 trillion which are in the portfolios of the nation’s largest loan servicers.

The second quarter was a transition period as the Obama Administration’s Making Home Affordable Program was getting underway.  The heart of the program is a loan modification program which requires a three month trial period to test the borrower’s ability to meet the requirements of the restructured loan.  The Report treats loans entering into that trial period as loans with payment plans.  As borrowers successfully complete the trial and enter into a formal loan modification the loan will be re-categorized as such.   Because of these definitions, loan modifications during the quarter dropped 25.2 percent from the first quarter but payment plans increased by 73.9 percent.

During the quarter 114,558 loans entered into payment plans, more than offsetting the 47,995 loan drop in modifications as servicers transitioned from other programs.

Borrowers’ monthly principal and interest payments were decreased in 78 percent of new modifications compared to 54 percent the previous quarter and the percentage of modifications that lowered principal balances more than tripled to 10 percent from 3.1 percent.  Prior to Making Home More Affordable servicers were loath to reduce payments but, the report cites previous reports that lower payments are more likely to produce sustained successful results.

Servicers changed more than one factor of the loan In three-quarters of those undergoing modifications.  Servicers most often reduced interest rates, capitalized late payments and fees, and extended the length of the loans.

Payment Option Adjustable Rate Mortgages are the most problematic of the loans.  15.2 percent of the more than 900,000 covered in the report were seriously delinquent compared to 5.3 percent of all mortgages and 10 percent were in foreclosure, more than triple the 2.9 percent rate for the total portfolio.

The OTS, OCC report covers 64 percent of all first mortgages in the country.