Federal Report Shows Loan Performance Lagging, Even After Mods

Data released this week by federal banking regulators show that nearly 14 percent of all mortgages were non-performing at the end of 2009 and more than half of all home loans modified in the first quarter of 2009 were delinquent again by the end of the year.

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According to the latest ""Mortgage Metrics Report"":http://www.occ.gov/ftp/release/2010-36a.pdf from the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), performance of home mortgages serviced by the largest national banks and federally regulated thrifts declined for the seventh consecutive quarter in the fourth quarter of 2009.

The overall percentage of current and performing mortgages fell to 86.4 percent at the end of last year, driven by an increase in mortgages that were 90 or more days past due. Prime mortgages, which make up two-thirds of the mortgages in the portfolio, continued to have the greatest increases in delinquency.

With the continued deterioration in loan performance, the regulators says lenders' have stepped up home retention actions, resulting in fewer foreclosures.

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Overall, servicers implemented more than 594,000 new home retention actions during the fourth quarter, according to the report. That included 259,410 new trial plans initiated under the Home Affordable Modification Program (HAMP) and 21,316 existing trial plans converted to permanent HAMP modifications. The actions also included 102,102 loan modifications, 94,667 trial plans, and 116,600 payment plans for borrowers who did not qualify for HAMP.

The number of new home retention actions was more than twice the number of new modifications during the same quarter a year ago.

More than 82 percent of all modifications implemented during the fourth quarter of last year reduced borrowers' principal and interest payments, and all HAMP modifications reduced monthly payments. Most HAMP modifications decreased borrowers' monthly payments by 20 percent or more, according to the regulators' report.

Recent vintages of modifications that lowered monthly payments performed better at three and six months after modification than older vintages, the study shows. However, redefault rates remained high overall, with more than half of all modifications falling 60 or more days past due by nine months after modification.

Newly initiated foreclosures fell by more than 15 percent in the fourth quarter and foreclosures in process were stable, as mortgages remained delinquent for longer periods before entering the foreclosure process and servicers evaluated more borrowers for loss mitigation and foreclosure prevention programs.

However, loan servicers report that they ""expect new foreclosure actions to increase in upcoming quarters as alternatives to prevent foreclosure are exhausted and a larger number of seriously delinquent mortgages slip into foreclosure,"" the report said.