Modified Mortgages Fail Faster

It would probably have been much easier to allow these mortgages to simply default the first time around and start from scratch… Modified mortgages fail faster... Nuff said.

Like I said, this is Most Definitely Not A Rescue.

Failure Rate Rises on Mortgages Revised in Late 2008, U.S. Says: “Mortgages modified in the third quarter failed at a faster pace than those revised in the first, and the delinquency rate on the least risky loans doubled, signs of deteriorating credit quality, U.S. regulators said.

Loans modified in the first quarter to help borrowers keep their homes fell delinquent 41 percent of the time after eight months, and second-quarter loans had a 46 percent default rate, the Office of the Comptroller of the Currency and Office of Thrift Supervision said in a report today. Third-quarter trends “are worsening,” the agencies said.

“For the year and this quarter, we saw the same trend that we saw last time: quite high re-default rates, no matter how we measured them,” John Dugan, the U.S. Comptroller of the Currency, said in a conference call with reporters.

Lenders including Citigroup Inc. and loan-servicing companies are adjusting mortgages by lowering interest rates or crafting longer-term payment plans. The Obama administration is acting to help as many as 9 million struggling homeowners by using taxpayer funds to pay lenders such as bond investors, mortgage servicers for reworking the mortgages.

Dugan said higher re-default rates are likely related to stressful economic conditions and new loan plans are not producing significant reductions to make mortgages sustainable.

“Credit quality continues to decline and that’s true of all types of mortgages that we cover by risk category,” Dugan said.

Prime mortgages that were delinquent after 60 days more than doubled in the fourth quarter, to 2.4 percent from 1.1 percent in the first, and rose significantly from the third quarter to the fourth, the report showed. Prime mortgages, considered the least likely to fail, account for two-thirds of all mortgages.

Rising Failure Rates

Borrowers with mortgages that were modified in the first quarter re-defaulted after three months 22 percent of the time, while loans revised in the second quarter had a 27 percent failure rate and third-quarter loans that were 60-days overdue failed 31 percent of the time, the report showed.

Seriously delinquent mortgages, those 60 days or more overdue, increased in all loan categories in the fourth quarter, including subprime, Alt-A, and prime loans.

The percentage of borrowers skipping the first payment on a modified loan rose significantly in all categories, except prime loans, the agencies said. Fourth-quarter first-payment defaults on subprime mortgages rose to 4.4 percent from 3.8 percent in the first, and overall climbed to 1.4 percent from 1.2 percent in the first, the report showed.”