OCC Notes Higher Delinquencies but Increasing Modification Successes


The eight national banks and single federal
savings association servicing the largest loan portfolios reported that first
mortgage performance declined across all categories of delinquencies during the
second quarter of 2011.  The information
is part of the Office of Comptroller of the Currency (OCC) Mortgage Metrics
released on Thursday which covers 63 percent of all outstanding first
mortgages in the nation.

According to the report, current and
performing loans represented 88.6 percent
of the banks’ portfolios in the first
quarter but declined to 88 percent by the end of the second quarter.  This is still an improvement from the second
quarter of 2010 when 87.3 percent of the loans in the portfolios were current.

Similar to the overall
portfolio of mortgages, the performance of mortgages held by reporting banks
and thrift declined in the second quarter of 2011 to an 80.3 percent ratio of
current and performing loans, down from 80.4 percent the previous quarter but
up from 77.2 percent a year ago.  The
percentage of performing government guaranteed mortgages decreased to 85.7
percent from 87.0 percent in Q1 but was improved from 85.3 one year ago. Freddie
Mac and Fannie Mae mortgages perform better than the overall portfolio because
of a higher percentage of prime loans. 
Current and performing loans constituted 93.1 percent at the end of Q2
compared to 93.2 percent at the end of Q1 and 92 percent in Q1 2010.

Early stage delinquencies, i.e. mortgages
that are 30 to 59 days delinquent, increased from 2.6 percent of the portfolio
in the first quarter to 3 percent, reflecting seasonal effects in addition to
the sluggish economy and elevated unemployment. 
Seriously delinquent mortgages – those over 60 days delinquent and
delinquent mortgages held by bankrupt borrowers, increased one basis point to
4.9 percent of the portfolio, ending five straight quarters when this category
trended down.  Both early stage and
serious delinquencies were down from a year earlier by .9 percent and 19.9
percent respectively.

The percentage of mortgages in the
process of foreclosure
was unchanged at 4 percent of the total portfolio and
while completed foreclosures increased 1.2 percent quarter-over-quarter, the
numbers were down more than 30 percent from the second quarter of 2010.  While the yearly decrease was significant,
OCC warned that completed foreclosures may continue to increase in future
quarters as a large number of delinquent loans work through the process and borrowers
exhaust other alternatives. 

Short sales increased by 12.6
percent during the second quarter and now represent 31 percent of all home
forfeiture actions.  Deeds-in-lieu
increased by almost 50 percent but still represent less than 1 percent of home

Servicers implemented 456,397 home
retention actions
during the quarter, nearly twice the 287,145 new foreclosure
proceedings.  Most of these actions were
under the Home Affordable Modification Program (HAMP) which increased by 31.6
percent during the quarter while other actions were down.  The net result was a decrease of 18.1 percent
in new retention actions compared to the first quarter. Servicers have modified
2,083,464 mortgage loans from the beginning of 2008 through the end of the
first quarter of 2011.

There has been increasing success
with these modification efforts. 
Mortgages modified in recent quarters have improved steadily over
earlier modifications and have performed consistently better than has been
historically the case for such loans.  At
the end of the second quarter of 2011, 51.3 percent of modifications remained
current or had been paid off.  Another 9.2 percent were 30-to-59 days
delinquent, and 18.2 percent were seriously delinquent.  More than 10
percent were in the process of foreclosure and 5.3 percent had completed
the foreclosure process.  Of the 938,180 modifications implemented during
2010, 62.4 percent were current or paid off.  Another 10.4 percent were
30-to-59 days delinquent, 15.2 percent were seriously delinquent, and 8.4
percent were in the process of foreclosure or had completed the foreclosure
process.  The table below shows the
steadily improving performance metrics of modified loans over the last five

The on-going emphasis on sustaining
the modifications by lowering the monthly payment is apparently paying off in
reduced defaults.  As the figure below
shows, as the amount of the payment reduction increases, the default rate
consistently goes down. 

Modifications done under HAMP are
performing much better than those done under other auspices.  A chart comparing the performance of HAMP
modifications with other modifications done in the last five quarters at three
month intervals results in 14 cohorts. 
HAMP modifications significantly outperformed other modifications in all
but the three month data point for loans modified in Q4 2010.  That deficiency was overcome three months

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