Home Loan Modifications, Delinquencies, And Foreclosures Rose in The First Quarter
January 20th, 2010 by adminLenders and servicers were able to modify more troubled loans during the first quarter, according to a recently released government report, but the number of homeowners falling behind on their payments continued to increase as well, and at a faster pace.
The report by the Comptroller of the Currency and the Office of Thrift Supervision, the regulator for banks and thrifts across the country, stated that home loan modifications during the first quarter of 2009 jumped 55 percent from the last quarter of 2008 and 172 percent from the same quarter last year. The two agencies’ report represents data from 64 percent of outstanding first lien residential mortgages.
According to the report, most modifications decreased homeowners’ mortgage payments by lowering the interest rates and/or extending the maturity of the mortgages. Lenders and servicers are still reluctant to include principle reductions in loan modifications as witnessed by 1.8% of modifications that included a reduction. Principle reductions could increase dramatically since the passage in Congress of the Safe Harbor Bill in May. The bill gives loan servicers greater autonomy from mortgage investors in how they negotiate terms on home loan modifications, including principle reductions. It’s often been the case that the investors that own the mortgages prevent principle reductions from being granted.
The biggest negatives of the report were the disclosures that the number of delinquencies and foreclosure filings increased as well. Additionally, the number of seriously delinquent homeowners, who have missed at least two payments, is growing at an increasing rate as unemployment and reductions in pay are taking a toll on formerly solid borrowers. Post modification defaults also continued at high rates. “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 a statement.
What stood out in the statistics is that the housing crisis is shifting away from risky borrowers in loans that were ticking time bombs to homeowners that have always been considered solid credit risks. The default and foreclosure rates in the risky subprime category are now being surpassed by those in the prime mortgage category. Prime borrowers, who are traditionally considered safer credit risks and compose the largest category of homeowners, are now falling behind on their payments faster as unemployment rises and home values drop.
The percentage of prime borrowers that have missed two payments on their mortgage rose 20.3 percent during the first quarter compared with the fourth quarter of 2008. It was up 163.7 percent compared with the same quarter a year ago. Prime borrowers make up approximately 67% of all U.S. mortgages. With 661,914 mortgages in serious delinquency up from approximately 250,000 in the same quarter of the previous year, industry watchers are wondering where the carnage will end in the category. In comparison, the percentage of subprime borrowers that were seriously delinquent rose only 1.5 percent during the first quarter. It was up 54.9 percent from the same period a year ago. As the first mortgage category to see massive numbers of defaults beginning in late 2006, most of the damage in the subprime category has already occurred, resulting in statistics that paint a relative level of stability.
The numbers reported by the Comptroller of the Currency and the Office of Thrift Supervision do not include any results from the Obama Administration’s “Making Home Affordable” plan due to its initiation at the end of the first quarter. The slow ramp up of the program has been a major concern for industry watchers, many of whom now think that the program by itself won’t have a major impact on the foreclosure crisis.
Sounding a more optimistic note, JP Morgan Chase announced that they had approved over 138,000 trial home loan modifications to date. A trial modification is one where the homeowner is granted lower payments for three months while a formal loan modification is finalized. The homeowner must stay current on payments for the three month trial period to see the modification through to its completion. JP Morgan Chase, through its purchase of Washington Mutual, is one of the largest lenders in the country.
“It has taken some time to put the resources in place to handle the extraordinary customer demand during this crisis, to incorporate each update to the administration’s Making Home Affordable Program, and then to properly evaluate each borrower’s situation,” Charlie Scharf, head of Retail Financial Services at JPMorgan Chase, said in a recent statement. “Over the last three months, we have made great improvements and we expect the numbers of approved modifications to continue to grow for some time.”
Another issue coming to light is that homeowners need assistance in navigating the loan modification process. The time needed, knowledge of the minutia in mortgage contract, and experience in negotiating terms for the most optimal outcome in a loan modification are proving to be beyond the purview of most homeowners. With foreclosure looming, it is becoming obvious that hiring legal counsel to negotiate new terms is the best single option for homeowners. With over 600 completed loan modifications, The Feldman Law Center has the experience to provide superior solutions tailored to the specifics of each homeowner’s needs. They can be reached at (800) 527 8497.
Author: Greg Feldman
