Mortgages Delinquencies and In-Process Foreclosures Jump
Foreclosures in process reached 3.2%, an increase of 9.4%, with more than 1 million foreclosures in process.
Loan Modification Efforts Improving
Yet on the bright side, more people are getting help with home loan modifications. National banks and thrifts implemented more than 680,000 home loan modifications and payment plans in the third quarter of 2009. That's up 67% from the second quarter, so it appears lenders have finally gotten their act together to help people in trouble with their mortgages.
Between Jan. 1, 2008, and Sept. 30, 2009, lenders implemented more than 2.4 million loan modifications, trial period plans, or payment plans including actions taken under the Obama Administration's Home Affordable Modification Program. But even with loan modifications, many home owners are finding it impossible to make their payments.
"Despite growth in the number of modifications, modified loans continue to re-default at high rates," the report said. "Measuring re-default as 60 or more days delinquent or in foreclosure, more than half of all modified loans re-defaulted within six months of modification.
The newer modification programs, however, seem to be showing greater signs of success. "Early indicators suggest more recent vintages with a higher percentage of modifications that reduce monthly payments are performing better than older vintages," the report continued. "More than 80 percent of all loan modifications implemented in the third quarter reduced monthly principal and interest payments for the borrower. Modified terms were primarily interest rate reductions and term extensions."
More banks and thrifts are considering decreasing principal balances as well. Mortgage modifications that include principal reductions increased to 13% of all modifications, up from 10% in the second quarter and 3% in the first quarter. Reducing a loan's principal to a number closer to the home's true market value not only decreases the monthly payment, but also gives the homeowner more reason to stay in a home that has lost value.
Other Key Trends Found by the OCC and OTS
- Payment Option Adjustable Rate Mortgages (Option ARMs) continued to perform worse than the overall portfolio as a result of the added risk characteristics and geographic concentration of these loans. At the end of the third quarter, just 67.7% of Option ARMs were current and performing; 16% were seriously delinquent; and 11.9% were in the process of foreclosure.
- Mortgages guaranteed by the U.S. government, primarily through the Federal Housing Administration and the Department of Veterans Affairs, also showed higher delinquencies than the overall servicing portfolio. Serious delinquencies increased to 8.2% of all government-guaranteed mortgages, up from 7.5% in the previous quarter. An additional 2.5% were in the process of foreclosures
- Servicers used a combination of actions when modifying loans to achieve payment sustainability. Interest rate reductions were used in 81.1% of all loan modifications implemented in the third quarter of 2009. Term extensions were used in 48.0% of the modifications, while 13.2% included principal reduction. Because 73.6% of all modifications changed more than one term, these percentages exceed 100%.
Based on these statistics, it does appear that lenders may finally be closer to finding a solution for the home mortgage crisis. Now the question is, how fast can they work to stem foreclosures? Until we see a reduction in the number of foreclosures, we can't even hope to see stability in the housing industry.
Even with this progress, the elephant in the room that hasn't been addressed is how to help the millions of people who have lost their jobs stay in their homes. Congressional leaders are pushing to use leftover money from the Troubled Asset Relief Program for mortgage relief for jobless Americans. U.S. Rep. Barney Frank (D-Mass.) wants $3 billion to be allocated to such a program.
His proposal is similar to a more than 20-year-old Pennsylvania program that offers unemployed workers low-interest loans to pay their mortgages. Under that program, borrowers are eligible for loans of up to $60,000 that can be repaid over an extended period with payments as low as $25 a month. The Pennsylvania program has helped about 80% of its participants to stay in their homes.
With 7.5 million people out of work and indications that job creation remains weak, some program to help the unemployed stay in their homes is mandatory if we truly want to stem foreclosures.