Sluggish Economy, Unemployment a Drag on Mortgage Performance

The performance of first-lien mortgages serviced by large national banks and federal savings associations declined slightly during the second quarter of 2011, according to a report by the Office of the Comptroller of the Currency (OCC). The report said much of the decline was caused by an increase in early-stage delinquencies, which it tied to seasonal effects as well as the sluggish economy and elevated unemployment.

The quarterly OCC Mortgage Metrics Report said 88% of the 32.7 million loans in the portfolio were current and performing at the end of the second quarter, slightly worse than the 88.6% at the end of the first quarter, but better than the 87.3% rate of a year earlier. The report covers about 63% of all first-lien mortgages in the United States, worth $5.7 trillion in outstanding balances. 

The report said an increase in early-stage delinquencies caused much of the performance decline. Mortgages 30-to-59 days delinquent increased to 3% of the servicing portfolio, up from 2.6% in the previous quarter. The share of mortgages that were more than 60 days delinquent and delinquent mortgages to bankrupt borrowers increased slightly to 4.9% of the portfolio from 4.8% in the first quarter of 2011, after decreasing during each of the previous five quarters. 

For the third straight quarter, 4% of all mortgages were in the process of foreclosure. Although the number of foreclosures completed during the second quarter decreased by more than 30% from a year earlier and increased only 1.2% from the previous quarter, the OCC said this number may continue to increase in future quarters as a large number of foreclosures work through the process and alternatives to foreclosure are exhausted.

Mortgage servicers implemented 18.1% fewer home-retention actions for delinquent borrowers in the second quarter (456,397 vs. 557,332 in the first quarter). Modifications under the Home Affordable Modification Program (HAMP) increased 31.6% during the quarter, but those modifications only accounted for 15% of all home-retention actions. All other types of home-retention actions (non-HAMP modifications; HAMP and non-HAMP trial-period plans; and payment plans) declined by 23%.