Behind the Numbers in the OCC and OTS Mortgage Metrics Summary for First Quarter 2009

The report recently released by the Comptroller of the Currency and the Office of Thrift Supervision showed some startling numbers for the first quarter, made worse by the knowledge that anecdotal evidence shows that the numbers for the second quarter of the year will likely be worse. The problems popping up all over the economy in general in the real estate market appear to be deeper and broader while assistance in the form of The Obama administration’s Making Home Affordable plan has been slow to arrive. Here’s some of the data and what it signifies for the real estate market:

* Serious delinquencies on prime loans, which account for two-thirds of all U.S. mortgages, rose to 661,914 in the first quarter from 250,986 a year earlier, according to the report. Overall, mortgages 60 days or more past due rose 88 percent from last year. Representing $4 trillion in mortgages, any incremental slippage in these numbers translates to major numbers in terms of inventory and dollars.  
* The data shows 5.9 percent of the 21.8 million Fannie Mae and Freddie Mac loans serviced by national banks or thrifts were at least days 30 days late, in foreclosure or subject to bankruptcy, compared with 3.2 percent a year earlier. That’s 1.2 million properties that were struggling in an economy that has worsened since the report.
* Seriously delinquent mortgages (60 or more days past due or involving delinquent bankrupt borrowers) continued to increase across all mortgage categories. Economic contraction continued to weigh on homeowners.
* Foreclosures in process also increased during the quarter to 844,389, or about 2.5 percent of all serviced loans, as moratoriums on foreclosures expired during the first quarter. This increase represented a 22 percent jump from the previous quarter and a 73 percent rise from the first quarter of 2008. Moratoriums continued to expire into the second quarter resulting in benchmark of one million foreclosures being reached in May.

The OCC/OTS report initiated coverage on loan modification metrics. The report gave results on a total of 185,186 loans that were modified in the quarter:

* Almost two thirds of modified loans employed combinations where at least two terms were modified to reduce the mortgage payment.
* Capitalization of delinquent interest, fees, and advances, combined with interest rate reductions and extended maturities were the most common combinations.
* On completed loan modifications, 70.2 percent included a capitalization of missed payments and fees, 63.2 percent reduced the interest rate, and 25.1 included an extended maturity.
* Modifications that reduced monthly payments by 20 percent or more jumped 19 percent from the previous quarter, to 29 percent of all modifications. Studies have shown that loan modifications that lower payments by 20% or more go into default at less than half the rate of those that reduce payments by less.
* By contrast, modifications that increased payments made up only 19 percent of the total, a drop of 25 percent from the previous quarter. Not surprisingly, these types of modification are falling out of favor due to their high re-default rate.

The report indicated that the main cause of foreclosures has morphed from ill-fated and risky subprimes to unemployment and a recessed economy. Considering that both of those areas continued to deteriorate over the second quarter, the next report from the OCC/OTS could be an eye opener.