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U.S. Modification Analysis

U.S. Modification AnalysisOCC, OTS report Q1 modification metrics

June 30, 2009

By staff

Federal bank regulators have released details about loan modification activity during the first quarter. Among the findings were a surge in the number of modifications completed, a high rate of re-defaults and better performance on modified loans that are owned by the servicers.

Modifications were completed on 185,156 loans during the first quarter, according to the OCC and OTS Mortgage Metrics Report, First Quarter 2009. The number of modifications jumped from 119,220 in the previous quarter and nearly tripled the 68,001 in the first-quarter 2008.

“The impact of this increase in modifications, particularly those with reduced monthly payments, will only be seen in future data,” the report said. “Likewise, the number of modifications recorded in this report does not reflect actions taken under the administration’s ‘Making Home Affordable’ program.”

Data was analyzed from nine servicers including Bank of America, JPMorgan Chase, Citibank, First Horizon, HSBC, National City, USBank, Wachovia, and Wells Fargo. The report encompassed 34 million residential first mortgages for more than $6 trillion — around 64 percent of all U.S. first liens outstanding.

First-quarter modifications on subprime loans were 77,280, prime modifications were 49,439 and Alt-A modifications totaled 43,218,

More than half of first-quarter modifications resulted in a lower payment, though payments increased in nearly one-fifth of modifications. Nearly two-thirds involved more than one change to the loan terms.

More than 70 percent of modifications included a capitalization of missed payments and fees. Interest rates were lowered on 63 percent and one-quarter included an extended term. Interest rates were frozen on 13 percent of modifications.

But the principal balances were lowered in less than 2 percent of modifications.

At the end of March, 59.2 percent of loans modified a year earlier were either at least 30 days delinquent, in foreclosure or foreclosed. A more broadly watched metric — the 60-day delinquency rate — was 33.0 percent.

Loans modified nine months earlier had a 60-day rate of 37.6 percent, while modifications seasoned six months had a 37.0 percent re-default rate. Of the loans modified during the first-quarter, 21.7 percent were already 60 days delinquent by March 31.

“It is noteworthy that modifications implemented in the first quarter of 2008 re-defaulted at a lower rate than those in the third quarter, measured at the same number of months after modification,” the report stated.

The government indicated that modified loans owned by servicers continued to performed better than modified loans with third-party servicers. This was more pronounced with private-investor loans than for agency loans. The disparity was attributed more flexibility available to modify loans by servicer-investors.

Residential Delinquency Mixed at Banks
Residential delinquency improved during the latest quarter, though serious delinquency deteriorated, according to an analysis of mortgage data from the country’s biggest banks.

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