Loan Modifications Up During First Quarter
Tuesday, June 30, 2009; 2:09 PM
Lenders modified more troubled loans during the first quarter, according to a government report released today, but a growing number of borrowers are falling behind on their payments.
The report by the Comptroller of the Currency and the Office of Thrift Supervision, which regulate banks and thrifts, found that the number of loan modifications during the first quarter jumped 55 percent from the previous quarter and 172 percent from the first quarter of 2008. The report tracks data on 64 percent of outstanding first lien residential mortgages.
More troubled borrowers are seeing their payments reduced as part of a loan modification, including by having their interest rate lowered or the terms of their loan extended. But it still remains rare for the lender to cut the principal owed by the homeowner, despite a continuing tumble in home prices. During the first quarter, only 1.8 percent of loan modifications included a reduction of principal, according to the report.
"While I'm very concerned about the rise in delinquent mortgages and foreclosure actions, the shift in emphasis by servicers to more sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months," Comptroller of the Currency John C. Dugan said in a statement.
But even as the rate of loan modifications grow, the number of borrowers seriously delinquent or who have missed at least two payments is growing, too. And borrowers continue to default at a high rate even after a modification.
The statistics also underline a shift in the housing crisis from simply a problem with subprime or other types of risky loans. Prime borrowers, who are traditionally considered safer, are falling behind on their payments faster as unemployment rises and home values drop.
The percentage of prime borrowers seriously delinquent on their mortgage rose 20.3 percent during the first quarter compared with the previous quarter. It was up 163.7 percent compared with the same quarter a year ago. In comparison, the percentage of subprime borrowers seriously delinquent rose only 1.5 percent during the first quarter. It was up 54.9 percent from the same period a year ago.
The numbers do not reflect any impact of the Obama administration's foreclosure prevention program, which lenders began implementing in March. But J.P. Morgan Chase announced today that it had approved 87,100 modifications under the federal program since April. Another 50,900 modifications have been approved for borrowers who did not qualify for that program.
"It has taken some time to put the resources in place to handle the extraordinary customer demand during this crisis, to incorporate each update to the [administration's] Making Home Affordable Program, and then to properly evaluate each borrower's situation," Charlie Scharf, head of retail financial services at J.P. Morgan Chase, said in a statement. "Over the last three months, we have made great improvements and we expect the numbers of approved modifications to continue to grow for some time."