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Mixed Performance on Bank Mortgages

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Quarterly deterioration in residential performance at the nation’s banks was primarily concentrated in early-stage delinquency. While new foreclosure filings were higher, the number of completed foreclosures fell as home-retention activity rose. Re-defaults on modified agency and portfolio loans were lower than on loans serviced for third-party investors and government-guaranteed mortgages.

The rate of past-due payments on home loans serviced by U.S. thrifts and banks, including delinquency of at least 30 days and loans in foreclosure, was 11.3 percent as of June 30. Delinquency climbed from March 31, when the rate was 11.1 percent. But performance has improved from the second-quarter 2011, when mortgages with late payments accounted for 11.9 percent of outstanding loans.

The increase from the first quarter was primarily the result of delinquency between 30 and 59 days, which climbed to 2.8 percent from 2.5 percent.

Serious delinquency of at least 60 days slipped to 4.4 percent from the first quarter’s 4.5 percent and was 4.9 percent in the second-quarter 2011.

Prime mortgages had a 60-day rate of 2.4 percent, while the Alt-A rate was 9.0 percent and the subprime rate was 15.4 percent.

The findings were outlined in the OCC Mortgage Metrics Report released Thursday by the Office of the Comptroller of the Currency. The report reflects first-lien residential loans that are serviced by selected banks. No statistical sampling was used in the report, so the metrics don’t necessarily represent the overall U.S. population of home loans.

The 30,494,357 in first liens for $5.2223 trillion as of June 30 at the covered banks reportedly accounted for 60 percent of all U.S. mortgages.

Banks’ servicing portfolios fell from the 31,026,381 mortgages serviced for $5.3328 trillion as of the end of March. The total was 32,769,738 loans serviced for $5.6830 trillion at the same point in 2011.

Prime mortgages — those with credit scores of at least 660 — made up 72 percent of the second-quarter total. Alt-A mortgages accounted for 11 percent, and subprime share was 7 percent.

New foreclosure filings amounted to 302,636 in the second quarter, worse than the first quarter’s 286,951. New foreclosures were 5.4 percent worse than the second-quarter 2011.

Foreclosures in process totaled 1,237,025 in the second quarter, easing from 1,269,921 three months earlier. The inventory was down 6.2 percent from the same period in 2011. Foreclosures in process accounted for 4.1 percent of all outstanding loans as of June 30.

Banks completed 101,735 foreclosures during the latest period, fewer than the 122,979 real-estate-owned filings in the first three months of 2012. Repossessions improved 16.1 percent from a year earlier. The OCC explained that the decline was due to “servicers holding loans in the foreclosure process for longer periods of time in an effort to accomplish alternate loss mitigation or home forfeiture actions.”

Second-quarter short sales totaled 63,403, up 6 percent from the prior period. New deed-in-lieu-of-foreclosure actions were down 17 percent to 2,336.

At the same time, banks completed 416,036 home-retention actions during the three months ended June 30. That was more than the 352,988 actions completed in the prior quarter but fewer than the 456,222 actions in the same three months last year.

Proprietary loan modifications accounted for 63,935 of second-quarter home-retention actions, while modifications completed under the Home Affordable Modification Program represented another 28,279 actions. Proprietary trial-period plans numbered 178,528, HAMP trial-period plans totaled 25,444, and payment plans added up to 119,850 during the quarter.

Interest rates were reduced on 83 percent of second-quarter modifications, while term extensions were involved on 65 percent, principal deferrals were made on 21 percent and principal reduction occurred in 11 percent of modifications.

Out of all the 2,645,290 loans modified between 2008 and the first-quarter 2012, just 49 percent were current or paid off. On just HAMP loans, 65 percent were current — better than the 51 percent of proprietary modifications that were current.

The OCC noted, “HAMP modifications perform better largely because of the emphasis on reduced monthly payments, affordability relative to borrower income, required income verification, and successfully completing a required trial period.”

Modifications involving a payment reduction of at least 10 percent had a 55 percent current rate, while it dropped to 34 percent when the payment was reduced by less than 10 percent.

Within one year of modification, 35 percent of all modified loans became at least 60 days past due. The re-default rate was 48 percent on government-guaranteed loans that were modified, while it was 44 percent on mortgages serviced for private investors.

But on modified portfolio loans, the re-default rate was just 23 percent. Both Fannie Mae and Freddie Mac modifications had a 26 percent re-default rate.

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