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Bank Regulators Report Mod Increase

Loan modifications made by mortgage lenders and servicers spiked during the first quarter of the year, according to a report issued Tuesday by the ""Office of the Comptroller of the Currency"":http://www.occ.gov (OCC) and the ""Office of Thrift Supervision"":http://www.ots.gov (OTS). The regulators said the trend toward more sustainable modifications with lower monthly payments continued, however delinquencies and foreclosures on first-lien mortgages also climbed.
The ""agencies' report"":http://www.occ.gov/ftp/release/2009-77a.pdf, based on data from loan servicing companies that manage 64 percent of all first-lien U.S. mortgages, shows that the number of loan modifications made by these institutions significantly increased during the first three months of the year. Servicers implemented 185,156 new loan modifications - up 55 percent from the previous quarter and 172 percent from the first quarter of 2008.
The proportion of payment-reducing modifications also increased. The regulators said servicers were focused on achieving more sustainable mortgages, with more than half of the modifications in the first quarter resulting in lower monthly principal and interest payments. Modifications that reduced monthly payments by 20 percent or more jumped 19 percent from the previous quarter, to 29 percent of all modifications. By contrast, actions that resulted in increased payments constituted only 19 percent of modifications, a drop of 25 percent from the prior three-month period.
The OCC and OTS noted that modifications which reduce payments have lower delinquency rates over time. The regulators' report showed that although delinquencies on modified loans increased each month following modification, delinquency rates were considerably lower for mortgages in which monthly payments were reduced. Six months after modification, only 24 percent of the mortgages that had monthly payments reduced by 20 percent or more were 60 or more days past due, compared with 54 percent of mortgages with monthly payments left unchanged, and 50 percent with higher monthly payments.
The regulators found that seriously delinquent mortgages also rose during the first quarter. Mortgages 60 or more days past due or involving delinquent bankrupt borrowers increased as economic pressures continued to take their toll on homeowners. Prime mortgages, which represented two-thirds of all mortgages in the portfolio, had the highest percentage increase in serious delinquencies, climbing by more than 20 percent from the prior quarter to 2.9 percent of all prime mortgages.
Foreclosures in process increased as well as moratoriums expired, totaling 844,389 during Q1, or about 2.5 percent of all serviced loans. This increase represented a 22 percent jump from the previous quarter and a 73 percent rise from the first quarter of 2008.
With servicers obvious push to provide substantive assistance to struggling homeowners, the regulators' report showed that servicers most often change multiple terms when modifying mortgages to achieve sustainable modifications. Capitalization of delinquent interest, fees, and advances, combined with interest rate reductions and extended maturities, were th predominant combinations during the first quarter. Interest rate and payment freezes, principal reductions, and principal deferrals were less prevalent.
Data also showed a continuing emphasis on preventing avoidable foreclosures to keep families in homes and mitigate losses, as servicers continued to implement more home retention actions (loan modifications and payment plans) than home forfeiture actions (foreclosures, short sales, and deed-in-lieu-of-foreclosure actions). Prime borrowers received about twice as many home retention actions as home forfeiture actions, while subprime borrowers received more than seven times as many.
Comptroller of the Currency John C. Dugan commented, ""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.""
The OCC-OTS report covers the performance of 34 million loans totaling more than $6 trillion in principal balances from the beginning of 2008 through the end of the first quarter of 2009. The agencies said that the impact of the increase in modifications, particularly those with reduced monthly payments, will become evident in future reports, adding that the Q1 data does not reflect modifications made under the administration’s Making Home Affordable program, which was announced in March and began after the reporting period.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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