WASHINGTON – An improving economy and better execution of loan modifications have meant fewer redefaults on restructured mortgages, the Office of the Comptroller of the Currency said Thursday.
The OCC’s Mortgage Metrics Report, which analyzes trends at seven national banks and one thrift with the largest servicing portfolios, showed that only 12.7% of loans modified in 2013 redefaulted after six months. That was compared to a 32.2% redefault rate in 2009. In 2008, when foreclosures hit crisis levels, the rate was 44.8%. (The most recent data was collected as of the second quarter of this year.)
Government and proprietary loan modification programs have “evolved” since the foreclosure crisis, “with more emphasis on affordability and sustainability for the borrower,” Kathy Gouldie, an OCC lead expert in retail credit and mortgage banking, said in an interview. The improvement “comes out in the numbers,” she added.
The report said servicers are also reaching out to struggling borrowers earlier in the process, instead of just waiting until they are significantly behind on their mortgage payments. “By reaching out early servicers are able to make better decisions for them” and offer them more and different loss mitigation options, Gouldie said.
The OCC also said loans owned by banks and thrifts covered in the report have a lower 8.6% redefault rate. Meanwhile, the redefault rate on Fannie Mae and Freddie Mac loans that were modified in 2013 is 12.1% and 9.5%, respectively. (A modified loan is considered in redefault once it becomes 60 days or more past due.)
Overall, the report found a significant drop in foreclosure activity over the past year. There were 80,000 new foreclosures initiated by servicers captured in the data during the second quarter, down 47% from a year earlier. The number of loans that were in the foreclosure process fell to 391,591, also down 47% from the second quarter of 2013.
The eight servicers completed 208,000 loan modifications and other home retention actions in the second quarter, down 34% from a year earlier.
The report also showed a slight uptick in short sales from the first quarter, but the 5% increase could just reflect a seasonal pattern. The 14,290 short sales completed in the second quarter are down 64% from a year earlier.
In some situations, a short sale is “still viable for some individuals,” Gouldie said.