Source : Business Times – 23 Dec 2009
Troubled home loans continued to mount in US banks in the third quarter as even once-solid borrowers increasingly fell behind on their mortgage payments.
For the first time, foreclosures on mortgages serviced by US national banks and savings and loans topped the one million mark, according to figures released on Monday by the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
The percentage of prime borrowers whose loans were more than 60 days past due doubled from the July- September period a year ago, while more than half of all homeowners whose payments had been lowered through modification plans re-defaulted.
The report, which covers about 34 million loans, or about 65 per cent of all US mortgages, underscores the obstacles facing policymakers trying to strengthen the nation’s housing market. Persistent unemployment is making it tough for millions of homeowners to pay their home loans. In addition, many people whose monthly instalments have been lowered through mortgage modification programmes still are unable to keep up.
Current and performing mortgages serviced by national banks and thrifts fell to 87.2 per cent – the sixth straight quarter that the quality of their home loan portfolios has slipped.
‘Mortgage performance continued to decline as a result of continuing adverse economic conditions including rising unemployment and loss in home values,’ the report said.
Seriously delinquent mortgages – loans 60 or more days past due and loans to delinquent bankrupt borrowers – rose to 6.2 per cent of the servicing portfolio. That represented a 16.7 per cent increase over the second quarter and a 73.8 per cent increase from a year earlier, according to the report. Of those seriously delinquent loans, the number in homes in the foreclosure process reached 1.09 million, or about 3.2 per cent of all the loans surveyed.
The report highlighted some troubling trends as the housing market continues to struggle despite increasing sales and prices in many areas.
Difficulties increased for holders of prime mortgages, with the percentage of those loans that were 60 days or more delinquent increasing to 3.2 per cent, up almost 20 per cent from the second quarter and more than double the rate of a year ago.
In addition, holders of mortgages whose payments had been lowered through government or private modification plans re-defaulted at high rates. More than half of all homeowners with modified loans fell 60 days or more behind in their payments within six months of the modification taking place.
But Bruce Krueger, a mortgage analyst for the Office of the Comptroller of the Currency, noted that homeowners with more recent modifications were doing better at keeping up with their new payments, reflecting a push by the Obama administration to get mortgage servicers to come up with better plans. About 35 per cent of homeowners who received modifications in the third quarter of 2008 fell behind 60 days or more behind on their payments after three months in the modified payment plan, the report said. That figure decreased to about 19 per cent of homeowners who received a mortgage modification in the second quarter of this year.
Still, the report’s data could add pressure on Congress to give financially strapped homeowners additional help by allowing judges to lower mortgage principal as part of bankruptcy, said Jaret Seiberg, a financial policy analyst with Concept Capital’s Washington Research Group.
‘While the re-default rate seems to be getting better, it’s still very high and it’s high enough to continue causing a political problem for the industry,’ he said.
Mortgage modifications increased in the third quarter as the Obama administration pushed servicers to participate in its Home Affordable Modification Program. The report said that servicers modified 680,000 loans through that programme or their own efforts. Overall, mortgage servicers started almost twice as many mortgage modifications as new foreclosures.
The invigorated attempt to keep people in their homes with lower payments ironically contributed to the rise in the number of homes in the foreclosure process. The pace of homes in which foreclosure proceedings began remained about the same in the third quarter as it was earlier this year. But fewer of those proceedings were finished as mortgage servicers worked with homeowners to modify some of those loans.
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