GSE Loan Modifications Increase. Prime Borrowers Falling Further Behind

The Federal Housing Finance Agency (FHFA) today released first quarter foreclosure prevention data for Fannie Mae and Freddie Mac. Total foreclosure prevention actions (including loan modifications) totaled 86,600, 20 percent more than the previous quarter and more than double the amount of first quarter 2008.  Of the nearly 87,000 actions, 90 percent resulted in home retention, which is consistent with 2008 data, while the remaining 10% resulted in mostly short sales and deeds in lieu of foreclosure.

Out of  the 30 million residential mortgage Fannie Mae and Freddie Mac own,  37,328 loans were modified by the two mortgage giants in the first quarter of 2009.  That is a 57percent increase in loan modifications since the fourth quarter of 2008 and more than double the number of modifications done one year earlier. Loan modifications accounted for 43 percent of all completed foreclosure prevention actions in the first quarter of 2009, 10 percent higher than the previous quarter.  The majority of modifications included both term extensions and rate reductions.  More than half of  the modifications resulted in at least a 20% decrease in monthly payments.  Only two percent resulted in a 20 percent reduction in the first quarter of 2008.

Although more homeowners are seeing a significant reduction in payment and fewer are losing their home, the FHFA's report  stated that mortgage delinquencies continued to increase during the first quarter. Approximately 173,700 more loans became 60 days-plus late on payments in the first quarter of 2009, an increase of 19 percent from the previous quarter to 1.1 million. Of the total GSE mortgage portfolio, prime loans had larger increases in delinquency volumes and rates. Furthermore, FHFA's report indicated that compared to the prior quarter, foreclosure starts increased by 63 percent to 243,800 in the first quarter of 2009. Of the increase in foreclosures, prime borrower foreclosures rose more than nonprime borrowers, this trend is indicative of the weak economy and rising unemployment.

The FHFA defines foreclosure starts as: "the total number of loans referred to an attorney to initiate the legal process of foreclosure during the month. These are loans measured as not being in foreclosure in the previous month but referred to foreclosure in the current month".

When discussing the outlook for expected future foreclosures, one must consider the change in 30-59 payment delinquencies, as new late payments are an indicator of things to come. Unfortunately the FHFA did not publish this data for previous quarters, it should however be noted that in the first quarter of 2009, 316,000 prime loans had first time late payments while 299,000 nonprime loans began to fall behind.

The most frequently cited causes for default:

36% Curtailment of Income

19% Excessive Obligations

8%   Unemployment

6%   Illness of Principal Mortgagor or family member

3%   Marital Difficulties

Note: The GSE's temporarily suspended foreclosure sales on owner occupied properties from November 26, 2008 to March 6, 2009

To read the entire report CLICK HERE