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A Closer Look at Foreclosure Prevention

Fannie Mae and Freddie Mac took action to prevent more than 63,000 foreclosures in the third quarter of the year, raising the total number of foreclosure prevention actions to more than 4.24 million since September of 2008, the Federal Housing Financial Authority reported on Thursday.

Additionally, there were 2,159 completed short sales and deeds-in-lieu during the quarter, bringing the total to 690,070 since the conservatorships began in September in 2008.

The report added that there was an improvement in delinquency rates. One quarter of borrowers for whom loan modifications were conducted saw their monthly payments drop more than 20 percent, while the serious (90 days or more) delinquency rate dropped to .79 percent, better than the rates for Federal Housing Administration (FHA) loans (3.7 percent), Veterans Affairs (VA) loans (2 percent), and the industry average of 2.1 percent.

The percentage of Fannie Mae and Freddie Mac loans that are 30-59 days delinquent increased to 1.5 percent while the 60-plus-day delinquency rate dropped to 1.1 percent at the end of the quarter. The Enterprises' serious delinquency rate also decreased to 0.79 percent at the end of the quarter. Nearly one-quarter (24 percent) of the modifications in the quarter included principal forbearance, the report added. Modifications with extend-term only accounted for nearly 7-in-10 (68 percent) of all loan modifications during the period.

FHFA pointed out that increases in house prices over the past couple of years have generally led to the rise in home equity even for delinquent homeowners, influencing the type of loan modification. Interest rate reductions are generally offered to borrowers with modest or no home equity, which has meant lower concessions on loan modifications, meaning a decreased payment change. However, FHFA stated that the reduction in the payment change has had the negative effect of slightly increasing the level of the post-modification delinquencies.

Foreclosures declined during the period, the report indicated. Foreclosure starts fell 17 percent to 32,557, while third-party and foreclosure sales dropped 7 percent to 12,464. Also declining during the period was the real estate owned (REO) by Fannie Mae and Freddie Mac, which the report said dropped 4 percent in the third quarter to 27,262, as property dispositions continued to outpace REO acquisitions.

About Author: Phil Britt

Phil Britt started covering mortgages and other financial services matters for a suburban Chicago newspaper in the mid-1980s before joining Savings Institutions magazine in 1992. When the publication moved its offices to Washington, D.C. in 1993, he started his own editorial services firm and continued to cover mortgages, other financial services subjects, and technology for a variety of websites and publications.

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