Half of U.S. Home Loan Modifications Default Again

Posted By on March 25, 2010

By John Gittelsohn

 

March 25 (Bloomberg) — More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

Modifications are clearly not working well and it’s not a surprise, said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.

The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.

Modified loans in the portfolio of banks — as opposed to loans owned by investors or government-sponsored enterprises such as Fannie Mae and Freddie Mac — had the best record of avoiding re-default, the Mortgage Metrics report said.

The banks are free to design modification plans for individual borrowers, Bruce Krueger, a mortgage banking expert with the Office of the Comptroller, said in a phone interview. The HAMP program requires lenders to follow a path of concessions to modify loans, beginning with interest rate reductions, extended loan terms and principal forebearance.

“It’s a very rigid process, Krueger said of the HAMP program. If the loan is on the bank’s books itself, the servicer can do whatever the bank might allow.

Last Updated: March 25, 2010 15:24 EDT

http://www.bloomberg.com/apps/news?pid=20601087&sid=aVYxPZ56vjys

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