Early Loan Modification Redefaults Fall in Third Quarter
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- Peter King | December 22, 2009
Foreclosure avoidance actions by mortgage lenders and servicers were up sharply in the third quarter of the year, while redefault rates on newly modified loans fell, according to new government figures out this week.
Home retention actions, including loan modifications, trial modifications and delinquent loan payment plans were up 69 percent in the third quarter of 2009, to 680,000 mortgages affected. That included 274,000 trial loan modifications under the administration’s Making Home Affordable Program, with the rest being under lender’s own modification or payment plans.
The figures were released in the joint quarterly report on mortgage metrics from the Office of Thrift Supervision (OTS) and the Office of the Comptroller of Currency (OCC), released on Monday.
Redefaults on new mods down one-third
In what may be an encouraging sign for the administration’s loan modification program, the percentage of newly modified mortgage loans that redefaulted within 60 days fell by more than one-third. Of mortgages modified in the second quarter of the year, 18.7 percent had defaulted within three months, compared to three-month redefault rates of 30-35 percent for loans modified over the previous four quarters.
The report said the lower redefault rate on new loan modifications may be an early indicator of the effectiveness of loan modifications that lower monthly payments, given the increase in that type of modification this year. Historically, many loan modifications result in higher monthly payments in an effort to get the delinquent borrower back on schedule.
The percentage of loan modifications that reduce monthly payments was up to 80 percent in the third quarter, a slight increase from three months earlier but almost double the 43 percent rate of the third quarter of 2008. The percentage of loan modifications that reduce payments shot up in the second quarter of 2009 following the introduction of the Making Home Affordable Plan, which requires a reduction in monthly payments as part of its terms.
Delinquencies continue to rise
Not all of the indications in the report were good news; the percentage of delinquent mortgages continued to rise, to 12.8 percent of all mortgages in the portfolio, up from 11.4 percent in the second quarter of the year. The percentage of serious delinquencies, those more than 60 days past due, increased to 6.2 percent of all mortgages, up from 5.3 percent the previous quarter and representing a 74 percent increase from the year before.
The delinquency rate on prime loans rose to 3.6 percent, double the rate of one year ago and up 20 percent from the second quarter of the year.
Newly initiated foreclosures held steady for the third consecutive quarter, at 369,000 mortgages. Completed foreclosures and other home forfeitures were up to 150,000, from 132,000 in the second quarter.
The OTS/OCC report covers first-lien mortgages serviced by the nation’s largest mortgage servicers and accounts for approximately two-thirds of all U.S. home loans.
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