According to a report recently released from the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), mortgage delinquencies and credit qualities decreased in all four ‘08 quarters. Nationwide, mortgage delinquencies at the end of 2008 were above 10%; home loan delinquencies increased across all mortgage categories: prime, subprime, Alt-A and “other mortgages”. Subprime mortgages lead the decline with a near 6% increase, from the end of the first quarter to the end of the fourth quarter (’08), and ended with an alarming 16.5% delinquency rate.
Homeowners that managed to receive a mortgage modification last year are adding to delinquency rates because of their high re-default* rates. From the OCC and OTS report, ” [modified] loans that were seriously delinquent (60 or more days delinquent or in foreclosure) after eight months was 40.9 percent for loans originated in the first quarter, and 45.9 percent for loans originated in the second quarter, with a worsening trend emerging for loans modified in the third quarter” (OCC and OTS Mortgage Metrics Report, Fourth Quarter 2008).
Represents 2008 Data - Graph Credit: OCC and OTS Mortgage Metrics Report
According to Re-default Data Shows Obama Housing Plan Potential, a majority of the loan modifications completed in 2008 did little to nothing in terms of reducing mortgage payments. In all, 58% of the ‘08 loan modifications did not lower monthly payments for struggling homeowners; most of these modifications did not create sustainable mortgages and thousands of modified mortgages are again in default.
Graph Credit: OCC and OTS Mortgage Metrics Report
The Comptroller of the Currency, John Dugan, said “what that [the Fourth Quarter Report] tells us is it really does make a difference to have reduced payments as a factor in getting at the sustainability of a mortgage modification. The data strengthens the Obama administration’s loan modification program, which allocates as much as $275 billion towards reducing the monthly mortgage payments for as many as 9 million American homeowners. Until the Obama administration released their home loan modification plan in February, loan modifications were primarily focused on delinquent borrowers, and unfortunately did not focus on lowering payments; the new plan aims to help all at-risk homeowners.
It looks like financial institutions lacked foresight once again in 2008 by approving and completing loan modifications for 423,152 homeowners, only to have nearly half of them default within a year. I wonder how long it will take for these institutions to get something right.
I guess they have bad management down.
*A re-default loan is a loan that has delinquencies and foreclosure actions preceding a loan modification.
Sources:
OCC and OTS Mortgage Metrics Report, Fourth Quarter 2008
Re-default Data Shows Obama Housing Plan Potential
Mortgage Delinquencies Continue to Rise Across America
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Loans will need to go as low as 2.99% fixed for 30 year to help this mess out. Better to make less profit and not eat the house….banks are you listening?
Rising unemployment is adding to these woes, forcing more borrowers to turn to credit cards for relief. Also Bank card delinquency is at its highest level in the past five years. This whammy could put even more homeowners on the road to foreclosure, delaying that recovery some seem to think is just months away.
Cheers,Harry,Panama property
At least there was good news today in the US that unemployment numbers fell for the first time since January. Hopefully this will be the start of the world's economy turning the corner and becoming prosperous again. Things are not as bad they were during the Great Depression….lets hope they stay that way.
Thanks for the great post!
Btw The mortgage market continues with its roller coaster ride as mortgage backed securities(MBS)raded way up yesterday then sold off all gains, leaving us just about where we started the day.
Hopefully we will continue to see the rates dip as unemployment seems to be dropping a bit.
Good info post. Thanks for sharing this article.
I figure that there’s been a bit of a reprieve this year, with the mark to market suspended, but next year as job losses continue, we’ll see this problem continue to get worse.
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