Federal report offers insight into mortgage problems nationwide

A federal report on mortgage delinquencies provides several succinct insights into the state of “mortgage performance” around the country, with possibly the key insight being that more than 9 out of 10 mortgages remain current.

The Dec. 22 report from The Office of the Comptroller of the Currency and the Office of Thrift Supervision showed that while delinquencies, foreclosures in process, and other actions leading to home forfeiture continued to rise, newly initiated foreclosures dropped by 2.6 percent from the second to the third quarter of 2008.

Although still mild compared to other parts of the state and country, foreclosure activity in the Fort Smith area is increasing. November foreclosure numbers from Irvine, Calif.-based RealtyTrac found 116 foreclosure activities in the Fort Smith region in November 2008, a 45 percent increase from November 2007 and a 6.4 percent increase from October.

The number of new loan modifications increased 16 percent in the third quarter to more than 133,000, a sign that financial institutions are more aggressive in modifying loans to avoid foreclosures.

The bad news in the federal report is an increase in the number of modified loans that were 30- and 60-days delinquent.

“One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months,” said Comptroller of the Currency John C. Dugan.  “This trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable.”

The report provides loan-by-loan data in a standardized format for 35 million first-lien mortgages—worth more than $6.1 trillion—held or serviced by national banks and thrifts.

Other findings in the report include:

• The number of delinquent loans increased during the third quarter across all loan categories—prime, Alt-A, and subprime.

• More than nine out of 10 mortgages remained current, but the percentage of current and performing mortgages fell from 93.33 percent at the end of the first quarter to 91.47 percent at the end of the third quarter.

• The number of newly initiated home retention actions — loan modifications and payment plans — increased by 13 percent from the second quarter to the third quarter.

• Loans held on the books of servicing banks and thrifts had the lowest re-default rates at 35.06 percent after three months, and 50.86 percent after six months, compared with loans serviced on behalf of third parties. The lower re-default rate for loans held by servicers may suggest that there is greater flexibility to modify loans in more sustainable ways when loans are held on a servicer’s own books than when loans have been sold to third parties.