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Mixed Performance for Portfolio Loans

Bank mortgage delinquency improves 90 BPS in Q1

June 27, 2012

By staff

While residential loans owned by banks and thrifts perform worse than agency loans, modified mortgages owned by the banks perform better, according to mortgage data from the biggest federally regulated banks. The report also found that a bigger share of government-supported loan modifications remained current than proprietary modifications.

The details were included in the Mortgage Metrics Report from the Office of the Comptroller of the Currency for the first-quarter 2012.

The regulator analyzed 31,026,381 loans for $5.333 trillion serviced by nine financial institutions -- including Bank of America, JPMorgan Chase, Citibank, HSBC, MetLife, PNC, U.S. Bank, Wells Fargo and OneWest Bank.

Prime mortgages made up 71 percent of the studied loans. Mortgages were considered prime if the borrowers had credit scores of at least 660. Alt-A share, representing borrowers with scores between 620 and 660, was 11 percent. Subprime borrowers, those with scores less than 620, accounted for 7 percent of the loans reviewed.

The OCC says that the sampled group's servicing portfolios accounted for 60 percent of all outstanding U.S. first mortgages. But the regulator noted that the loans don't necessarily represent the overall U.S. population of residential loans.

Loans serviced for Fannie Mae and Freddie Mac accounted for 59 percent of mortgages serviced by the banks.

Delinquency of at least 30 days, including foreclosures, was 11.1 percent as of March 31, improving from 12.0 percent as of the end of last year and 11.4 percent at the same point in 2011. It was the lowest rate in three years.

But the performance of just the loans held in the banks' investment portfolios was much worse, with the 30-day rate at 16.5 percent. However, the rate was down from 17.4 percent three months earlier and 19.6 percent a year earlier.

"Mortgages held in bank portfolios include concentrations of loans with non-conforming risk characteristics that fall between GSE and government-guaranteed underwriting criteria, loans on properties located in weaker geographic markets acquired through the purchase of failed institutions, or more recently, loans repurchased from investors," the report stated.

Delinquency on government-guaranteed mortgages fell to 14.1 percent from 15.8 percent but deteriorated from 13.0 percent in the first-quarter 2011.

On Fannie and Freddie mortgages, the delinquency rate declined to 6.3 percent from 6.9 percent in the fourth-quarter 2011. In the year-earlier quarter, the rate was 6.8 percent.

By credit category, prime delinquency fell to 6.40 percent from 6.90 percent and was also down from 7.00 percent a year prior. Alt-A delinquency declined to 21.40 percent from 23.50 percent but was unchanged from the first-quarter 2011. Subprime delinquency, meanwhile, was 36.10 percent, down from the fourth quarter's 39.50 percent but up from 35.00 percent during the same quarter last year.

The number of new foreclosure filings, 286,951, was down 1.8 percent from Dec. 31 and 8.1 percent better than March 31, 2011.

"The decrease in new foreclosures reflects the continued emphasis on home retention actions as well as the decrease in the number of seriously delinquent loans over the past few quarters," the report stated. "Many servicers have also slowed new foreclosure referrals in response to changing servicing standards and requirements."

Foreclosures in process, however, climbed to 1,269,921 from the prior quarter's 1,262,294 but have fallen from the first-quarter 2011's 1,308,757.

The rate of foreclosures in process rose to 4.1 percent as of March 31 from 4.0 percent three months earlier and a year earlier.

The foreclosure rate during the most-recent period was 7.1 percent on portfolio loans, 3.2 percent on government-guaranteed loans and 2.5 percent on loans serviced for Fannie and Freddie.

The first-quarter 2012 foreclosure rate on prime loans was 2.6 percent, while it stood at 7.2 percent on Alt-A loans and 12.5 percent on subprime mortgages.

Completed foreclosures were 122,979 in the first quarter, up 5.9 percent from the fourth-quarter and 2.7 percent higher than the same period in 2011. Another 59,996 loans went through a short sale, and 2,806 new deeds-in-lieu-of-foreclosure actions were processed.

During the first three months of this year, 352,989 home-retention actions were reported, falling from the 460,213 actions during the final three months of last year and the 557,469 in the first three months of 2011. Proprietary loan modifications accounted for 65,604 of the latest quarterly total, while modifications completed under the Home Affordable Modification Program numbered 36,554 and payment plans made up 121,815 actions. The rest of the actions were trial-period modification plans.

Out of the total 102,158 modifications implemented during the first quarter, 21,520 were in California, 11,090 were in Florida and 5,979 were in New York.

Of the 2,542,133 mortgages that were modified between 2008 and 2011, a little less than half of the loans are current and open. Among the other the other half -- around 22 percent are delinquent, 11 percent are in the foreclosure process and 6 percent have completed foreclosures. Another 1 percent has been paid off and 10 percent are no longer in the portfolio.

Among loans modified between the second-half 2009 and the end of last year, 68 percent of HAMP transactions are current while just 53 percent of non-HAMP modifications are not delinquent.

Modifications where the payments were cut by at least 10 percent have a 58 percent current rate, while payments that were reduced by less than 10 percent have left only 37 percent of those loans current.

The OCC found that after 12 months, the 60-day delinquency rate on government-guaranteed mortgages modified since Jan. 1, 2008, was 48.3 percent -- the worst re-default rate of any category. Close behind were privately owned mortgages, which had a 45.8 percent re-default rate.

But the rate was much lower on Fannie's loans, at 27.0 percent, and Freddie's loans, which had 60-day delinquency of 26.7 percent 12 months after modification.

The lowest default rate was with portfolio loans owned by the banks: 23.4 percent.

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