Treasury Department Foreclosure Report

Foreclosure and Mortgage Deliquencies

Q4 2009

I finally finished the OCC and OTS Mmortgage Metrics Report for the fourth quarter of 2009 (I know you’re jealous at how much fun I get to have).   The report looks at all first liens held by most of the largest mortgage servicers.  It covers almost 34 million loans totaling almost $6 trillion.  It is the raw data before it gets spun by the press or politicians.  Here are some highlights and lowlights from the report:

Delinquent Mortgages

• Mortgage performance declined for the seventh consecutive quarter.  Delinquent mortgages and mortgages in foreclosure rose to 13.6% of all mortgages (once again, just talking about first mortgages).

• The percentage of mortages 30-59 days late stayed stable, most of the increase was in seriously delinquent mortgages.  This may be a positive as it is showing that the pace of new delinquencies is not picking up, and that loans are staying seriously delinquent longer which is an indication that banks are working longer to modify before moving to foreclosure.

• Option Arms continue to be the worst performing loans with only 662% current.

• There was a large increase in the number of seriously delinquent prime loans as the number jumped fro 838k to 976k in one quarter.  Almost 1 in 25 prime borrowers is more than 60 days late on the mortgage.

• Overall, 7.1% of all mortgages are seriously delinquent (60+ days late) and an additional 3.4% are 30-59 days late.

• Although the Sub-Prime and Alt-A loans have the highest percentage of delinquencies, the Prime loans have the highest number – this is important as if the percentage of prime loans going bad keeps rising it has a real chance of bringing the market down again.  However, these are also the borrowers that have the best chance of recovering if employment and the economy continue to recover after the stimulus expires.

Home Retention Actions

• The number of home retention actions slipped by 19.1% compared to the third quarter.  This is probably likely to the fact that HAMP received so much publicity in the third quarter that most people who were eligible applied then. 
• Discouraging number on the HAMP program was that although 349k people had entered the 3 month trial period in the second and third quarters, only 21k of those received permanent modifications during the fourth quarter.  That’s about a 6% conversion rate (it’s too early to have data to see how many re-default).  If that is an accurate number (it is possible that many were delayed past 3 months by paperwork issues, etc.) then the program is really a failure.  Let’s hope the numbers get better.
• More than 50% of HAMP trial plans and modifications are for prime borrowers
• There were almost twice as many home retentions started as foreclosures (this would also explain the increase in seriously delinquent mortgages as they stay delinquent until fully modified).
• The percentage of loans modified that had principal reductions fell to 6.8%.  Rate reduction and capitalization (adding your late payments back to the loan) were the most common modifications.
• HAMP modifications only included principal reduction 0.1% of the time, but they did utilize principal deferral 26.8% of the time.
• 42% of all modifications decreased payments by 20% or more – this is important to the  borrower being able to keep up with payments on the modified mortgage.
• 82% of HAMP modifications decreased payments by 20% or more.

Modified Loan Performance

•  The performance of modifications continues to improve over time:
  • Only 33.5% of loans done in the second quarter of 2009 were 60+ days late six months later compared to 42.7% of loans in the first quarter.
  • Only 14.7% of loans modified in the third quarter were 60+ days late 90 days later as compared to 30.8% of the loans done in the first quarter of 2009.
• Loans 30+ days late were obviously a higher percentage; 47.5% after 6 months for loans modified in the second quarter and 29.8% after 3 months for loans modified in the third quarter.  Both of these are significantly better than they were prior to the second quarter.
• The highest Re-Default rate is for Government-Guaranteed loans (FHA, VA, etc.)  with 67.8% 60% days late a year after modification (these are obviously reflecting pre-HAMP modifications as none have been modified for a year yet).
• One reason to be a little more positive about HAMP modifications (if more get completed) is that they seem to be reducing payments by 20% or more, and historically loans that have payments reduced by 20% or more have a re-default rate of only 39.8% a year later (as opposed to 67% if the payments are unchanged).

Foreclosures

• Newly initiated foreclosures declined in the 4th quarter as homes are staying in the seriously delinquent phase longer as lenders are working harder on modifications.
• Completed foreclosures increased by 8.6% over the previous quarter and 35.7% higher than a year ago. 
• There are almost 4x as many foreclosures as short sales and Deed-in-Lieu actions, although short sales are up 96.8% over a year ago.
• 7.8% of all subprime mortgages are in foreclosure while only 2.3% of prime mortgages are in foreclosure (however since there are more prime mortgages, there are actually more total prime loans in foreclosure than subprime).

 

A couple of key numbers to look at next quarter will be:

• How many of the HAMP trial periods get converted to permanent modifications.
• If the loans that are seriously delinquent transfer into the foreclosed or modified category.
• If loans modified in the third quarter of 2009 and later continue to have a lower re-delinquency rate.

I expect that the data for the first quarter will continue to improve and the real questions will come with the second and third quarter data as that data will reflect the market after the stimulus has expired.