Prime Mortgage Delinquencies Spike: Report

Less than 90 percent of all mortgages were considered “performing” at the end of 2008, compared with 93 percent at the end of September 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision announced Friday in a joint quarterly mortgage performance report. Although subprime mortgages (unsurprisingly) showed the highest level of serious delinquencies, prime mortgages posted the largest percentage jump — more than double — from 1.1 percent recorded at the end of March 2008, to 2.4 percent at year-end. Prime mortgages, considered the lowest risk bucket due to inherent high credit score distribution, account for two-thirds of the mortgages examined for the study. Recidivism — or re-default rates — among modified mortgages continues to represent a problem for the industry. The agencies reported that 41 percent of loans modified in the second quarter had fallen at least 60 days behind payments after eight months, a trend that “appeared to continue for loans modified during the third quarter.” “The reasons for high re-default rates are not clear,” officials wrote in a press release. “As noted in the previous quarter’s report, high re-defaults could be the result of a worsening economy, excessive borrower leverage, or poor initial underwriting.” For the firs time, the OCC and OTS reported separate data sets for four modification categories that: reduced monthly payments by more than 10 percent or 10 percent or less, had no effect on monthly payments, or increased monthly payments. “Overall for 2008, about 42 percent of modified loans resulted in reduced payments, 27 percent in unchanged payments, and 32 percent in increased payments,” the agencies reported. “The proportion that reduced payments increased significantly in the fourth quarter, to more than 50 percent of all modifications.” Re-default rates among modifications that actually lowered monthly payments “were consistently lower,” according to the report. About 23 percent of modifications that eased payments by more than 10 percent re-defaulted six months later, compared with the 51 percent of unchanged modifications that re-defaulted after six months. Some 46 percent of modifications that led to an increased payment had re-defaulted six months later. Combined modifications and payment plans rose more than 11 percent overall in the quarter, although they “declined as a percentage of all retention actions” to 40 percent at year-end from 52 percent recorded at mid-year, the agencies reported. HousingWire has found in recent months that these options broken out between prime and non-prime borrowers shows a continuing disparity. During February, 39.7 percent of loan workouts for prime borrowers were loan modifications; in contrast, 66.5 percent of subprime loan workouts were loan modifications, according to data released in late March from HOPE NOW, the private sector alliance of mortgage servicers. Write to Diana Golobay at [email protected].