Foreclosures Hit One Mortgage in Forty

Foreclosures rose sharply during the first quarter of the year, increasing by more than 20 percent to account for one in 40 outstanding U.S. mortgages, according to government figures released this week.

The deepening recession and the expiration of a number of foreclosure moratoria during the first three months of the year caused the total number of U.S. foreclosures underway to increase to more than 844,000, according to a joint statement by the Office of the Comptroller of Currency (OCC) and Office of Thrift Supervision (OTS). The number represents a 73 percent increase over the first quarter of 2008.

Five percent of mortgages seriously delinquent

Mortgages in serious delinquency, defined as 60 days or more past due, also increased to the point where they accounted for 5 percent of all mortgages. Prime mortgages saw the biggest increase in serious delinquencies, increasing by more than 20 percent to account for 2.9 percent of all prime mortgages in the study.

At the same time, government officials emphasized that the first quarter also saw increased efforts by lenders to reduce mortgage payments for at-risk homeowners. Completed loan modifications were up 55 percent, to 185,000, with a larger percentage of modifications offering significant reductions in monthly payments. The number of loan modifications reducing a borrower's monthly payment by 20 percent or more increased 19 percent, to account for 29 percent of all loan modifications implemented.

"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 said. "In addition, as the 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."

Reducing payments leads to fewer delinquencies

The report noted that, although delinquencies increase on all modified loans in the months following modification, mortgages in which payments were reduced by 20 percent or more had significantly lower rates of serious delinquency. Only 24 percent of mortgages in which payments were reduced by 20 percent or more were seriously delinquent six months after modification, compared to 54 percent of those where payments were left unchanged.

Loan modifications on mortgages held in the server's own portfolios had significantly lower rates of re-default than loans held by Fannie Mae, Freddie Mac or private investors. The report suggested this may be due to the fact that servicers have greater flexibility to modify their own loans.

The report does not show the early impacts of the government's Making Home Affordable Program, which was only beginning to be implemented at the end of the first quarter.

The survey covers first lien residential mortgages serviced by national banks and federally regulated thrifts, which account for about two-thirds of all U.S. mortgages. That total reflects some 34 million mortgages with $6 trillion in principal.