Regulators Find More than Half of Mortgage Modifications in Trouble Again

Of the more than 1m modifications done in 2008 and 2009, 53% are either delinquent or in foreclosure again in Q110, according to a report from Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). But the OCC and the OTS reported that more recent modifications performed better after servicers began to emphasize lower monthly payments in Q109. New analysis of the more than 429,000 modifications that reduced monthly payments by 10% or more showed that 54.1% of them were current at the end of 2010. That’s compared to the more than 578,000 modifications that reduced monthly payments by 10% or less. Of those, only 32.2% were current in Q110. The OCC and the OTS sorted out which modification programs are performing best. They found fewer re-defaults on workouts done through the Home Affordable Modification Program (HAMP), which the Treasury Department launched in March 2009 to provide incentives to servicers for the modification of loans on the verge of foreclosure. Through May, those services conduced more than 340,000 permanent modifications. At three months after a HAMP modification, 7.7% of were 60 or more days delinquent, compared to 11.3% overall. At three months, 16.7% of HAMP modifications were 30 or more days delinquent, compared to 24.6% of all modifications. “These lower early post-modification delinquency rates may reflect HAMP’s emphasis on the affordability of monthly payments and the requirements to verify income and complete a successful trial period,” according to the report. According to the credit rating agency, Fitch, however, 55% to 75% of those loans modified through HAMP would ultimately redefault, citing borrowers’ ability to maintain cashflows and a desire to stay in the home. Write to Jon Prior.

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