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Home Retention Acts Up, But Re-Default Rate Awful


A look at loss mitigation and re-default rates via the third quarter 2009 OCC and OTS Mortgage Metrics Report:

So-called “home retention acts” (loan modifications, trial period plans and payment plans) totaled 680,153 in the third quarter, up 68.7 percent from the second quarter and 153.2 percent from a year ago.

These actions relative to the number of borrowers seriously delinquent or in process of foreclosure increased to more than 21 percent in the third quarter, up from 14.44 percent a quarter earlier (about the same percentage a year ago).

Newly initiated foreclosures held steady quarter-to-quarter at about 369,000, but were still up 31.3 percent from a year ago.

Completed foreclosures and other home forfeitures increased 13.9 percent from the second quarter to 150,602, while short sales jumped 22.4 percent quarterly to 30,766.

Standard loan modifications actually fell 7.7 percent quarter-to-quarter as HAMP modifications saw a 240.6 percent quarterly boost, with the program finally kicking into high-gear

Of course, most of these loan mods are in the trial period, as we recently found out only 31,382 loan modifications had been made permanent thus far.

And the re-default numbers on all types of loan mods continue to be nasty, with more than half of all modified loans back in arrears (60 or more days delinquent or in foreclosure) after just six months.

And yes, monthly mortgage payment seems to determine whether a borrower will get back on track.

“After 12 months, 38.6 percent of modifications that decreased monthly payments by 20 percent or more were seriously delinquent. In contrast, 66.0 percent of modifications that left payments unchanged and 68.7 percent of modifications that increased payments were seriously delinquent after 12 months.”

Re-default rates have actually been much better for option arms, likely because of the prevalence of principal balance reductions.

Government-guaranteed mortgages (FHA loans, VA loans) have exhibited the worst re-default rate, with nearly two-thirds 60 days + delinquent after 12 months; portfolio loans performed best with a re-default rate of just 41.7 percent.


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