Subprime and Alt-A mortgages continue to account for a disproportionate share of defaults and foreclosures at banks, according to a new report. Foreclosure prevention activity is outpacing new foreclosures filed.
The report, jointly issued from the Office of the Comptroller of the Currency and the Office of Thrift Supervision, was based on data from 34.8 million loans for more than $6.1 trillion submitted by the biggest nine national banks and five savings associations. Loans covered in the report represent 60 percent of all U.S. mortgages.
Based on these figures, about $10.17 trillion residential U.S. mortgages were outstanding as of June 30 at banks and non-banks.
The nine reporting banks were Bank of America, Citibank, First Horizon, HSBC, JPMorgan, National City, U.S. Bank, Wachovia and Wells Fargo. The five thrifts were Countrywide, IndyMac, Merrill Lynch, Wachovia FSB and Washington Mutual.
Subprime mortgages, where the borrower had a credit score below 620, accounted for 9 percent of the reporting institutions' portfolios as of June, according to the report. Alt-A, which included loans with scores between 619 and 660, represented 10 percent. Prime loans, where borrowers had scores of at least 660, accounted for 66 percent. The difference, 15 percent, were loans where the banks could not identify the credit scores.
The report indicated credit quality declined during the second quarter.
Excluding foreclosures, loans delinquent at least 30 days were 5.80 percent on June 30, rising from 5.24 percent on March 31. On prime loans, delinquency was 2.60 percent at the end of the second quarter, while Alt-A loans had a 11.67 percent rate and subprime loans had a rate of 21.96 percent.
There were 288,740 new foreclosures started in the second quarter, up from 278,857 in the first quarter. Foreclosures initiated on prime loans were 120,479, Alt-A accounted for 60,132 and subprime represented 74,714.
Foreclosures in process ended the second quarter at 1.60 percent, compared to 1.40 percent at the end of the first quarter. The foreclosure rate on prime loans was 0.95 percent, while Alt-A loans had a 3.32 percent rate and subprime foreclosures were 5.07 percent.
Even though subprime loans accounted for just 9 percent of loans outstanding, they accounted for 28 percent of all foreclosures. Alt-A loans, which represented 10 percent of loans outstanding, accounted for 21 percent of foreclosures.
But more than 92 percent of loans were current as of June 30.
"Actions by national banks and thrifts to prevent home mortgage foreclosures increased faster than their new foreclosures during the second quarter of 2008, despite an overall decline in mortgage credit quality and an increase in foreclosures," the report said.
During the second quarter, 112,353 loans were modified, climbing from 71,883 in the prior quarter. Most modifications involved contractual changes to the interest rate or amortization and maturity. Subprime modifications accounted for nearly half of all modifications.
Payment plans numbered 140,155, rising from 136,367 in the first quarter, with subprime loans accounting for 41 percent.
About 88 percent of the loans in the study were part of residential mortgage-backed securities.
"Despite its relatively comprehensive coverage, readers should not use the data in this report to draw conclusions about overall conditions in mortgage lending," the regulators said. "The characteristics of these loans differ in notable ways from the overall population of mortgages."