Regulators Point to Improving Loan Performance Across-the-Board

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Performance of home mortgages serviced by the largest national banks and federally regulated thrifts improved earlier this year, for the first time in more than 24 months.

According to a report released Wednesday by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), home loan delinquency rates dropped during the first quarter of 2010, with improvements in all categories – prime, Alt-A, and subprime.

Mortgages in all stages of pre-foreclosure delinquency improved during the three-month period. Serious delinquencies declined to 6.5 percent of the portfolio, down 7.7 percent from the previous quarter. Loans 30 to 59 days past due declined 17.7 percent to 2.8 percent of the loan pool.

The regulators’ Mortgage Metrics Report shows that the ratio of mortgages that were current and performing increased to 87.3 percent of the studied loan portfolio – an increase of 1 percent from the previous quarter.

Foreclosure statistics, though, increased “substantially,” the agencies said, which may account, at least partly, for the improvement in delinquency numbers as prevention options were exhausted and more loans were pushed through the pipeline and liquidated.

Compared with the previous quarter, newly initiated foreclosures increased nearly 19 percent to almost 370,536 in Q1. Foreclosures in process increased nearly 9 percent to 1,170,874. Completed foreclosures were also up, nearly 19 percent to 153,654.

At the same time, the number of modifications and other home retention actions also increased. Overall, the number of actions to prevent avoidable foreclosures increased more than 5 percent from the previous quarter and more than 61 percent from a year earlier. The report notes that servicers initiated 1.7 times as many modifications and payment plans as new foreclosures last quarter.

Servicers implemented nearly 630,000 new home retention actions in the first quarter, including nearly 100,000 modifications and 190,000 trial plans through the administration’s Home Affordable Modification Program (HAMP). Another 130,000 mods and 93,000 trials were initiated under non-government programs.

The sustainability of modifications continued to improve, with more than 87 percent of loan modifications reducing payments, and nearly 55 percent reducing payments by 20 percent or more, according to the report.

Home retention efforts may be increasing, but re-default rates on modified mortgages remain extremely elevated. The OCC and OTS report that 57 percent of all modified mortgages were 60 or more days past due after 12 months.

The regulators say, though, that newer modifications appear to be performing better, a point that Barclays Capital also emphasized in a recent report.

Short sales continued to grow in Q1 as an alternative to foreclosure, increasing 9.2 percent to 41,033 – more than doubling from a year ago.

The OCC and OTS Mortgage Metrics Report presents data on first-lien residential mortgages from the nine banks and two thrifts with the nation’s largest mortgage-servicing portfolios. The data represent more than 64 percent of all first-lien residential mortgages outstanding in the country. More than 90 percent of the mortgages in the portfolio were serviced for third parties because of loan sales and securitization. At the end of March 2010, the reporting institutions serviced almost 34 million first-lien mortgage loans, totaling nearly $6 trillion in outstanding balances.

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Paul Roesch
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