Mortgage Performance Improves; Scrutiny of Bank Procedures Slows Foreclosures

The nation’s home mortgage portfolio continued a trend of slight improvements as the share of “current and performing” first-lien mortgages serviced by large national banks and thrifts ticked up in the fourth quarter of 2010, according to a joint report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.


The OCC and OTS Mortgage Metrics Report, Fourth Quarter 2010 said that 87.6% of the 32.9 million loans in the portfolio were current and performing at the end of the fourth quarter of 2010, slightly better than the 87.4% rate in the third quarter of 2010 and a steady climb from the 86.4% rate in the prior-year period. The percentage of mortgages that were seriously delinquent declined for the fourth consecutive quarter to the lowest level since the second quarter of 2009.


The report covers about 63% of all first-lien mortgages in the country, worth $5.7 trillion in outstanding balances.


Completed foreclosures and newly initiated foreclosures decreased in the fourth quarter, a change the report attributed to moratoriums imposed by the largest mortgage servicers amid a review of their foreclosure processing procedures. Completed foreclosures decreased by nearly 50% to 95,067. Newly initiated foreclosures decreased by almost 8% to 352,318. Because new foreclosures outpaced completed foreclosures, the inventory of foreclosures in process increased by more than 7% to 1,290,253; that represented 3.9% of all serviced loans at the end of the fourth quarter. The report said that new and completed foreclosures are likely to increase in upcoming quarters as moratoriums are lifted and the large inventory of seriously delinquent loans and loans in process of foreclosure work through the system.


During the quarter, servicers initiated more than three times as many home retention actions as completed home forfeiture actions. Servicers implemented 473,415 home retention actions (loan modifications, trial period plans, and shorter-term payment plans), compared with 146,132 completed home forfeiture actions (completed foreclosures, short sales, and deed-in-lieu-of-foreclosure actions).


Nearly 90% of the 208,696 modifications implemented during the fourth quarter reduced homeowners’ monthly principal and interest payments. Modifications made during the quarter reduced payments by an average of $414, or 25.5%. Modifications through the Home Affordable Modification Program (HAMP) reduced payments by an average of $587 (35.9%), compared with a payment reduction of $351 (21.6%) from other modifications.


Modifications that significantly reduced monthly principal and interest payments continued to perform better than earlier modifications. More than 57% of the modifications made since Jan. 1, 2008, that reduced payments by 10% or more were current and performing at the end of the fourth quarter of 2010. In contrast, only 34% of modifications made during the same period that reduced payments by less than 10% were current and performing.


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