WASHINGTON — After receiving a loan modification, borrowers are re-defaulting on their mortgages at alarming rates, Comptroller of the Currency John Dugan said Monday.
In comments at a regulatory housing forum, Mr. Dugan said that 51% of borrowers that received a loan modification in the second quarter were more than 30 days past due six months later.
"Put simply, it shows that over half of mortgage modifications seemed not to be working after six months," he said, according to a text of his remarks.
Mr. Dugan is appearing on a panel with other regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair, who has championed the need for loan modifications, and Office of Thrift Supervision Director John Reich.
Mr. Dugan said he did not know why re-default rates were so high, but that the OCC and OTS, as part of a report on the extent of loan modifications, are attempting to find out.
"Is it because modifications did not reduce monthly payments enough to be truly affordable to the borrowers?" Mr. Dugan said. "Is it because consumers replaced lower mortgage payments with increased credit card debt? Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments?... We don't know the answers yet."
Mr. Dugan said the question "has important ramifications for the foreclosure crisis and how policymakers should address loan modifications, as they surely will in the coming weeks and months.
The OCC and OTS are expected to release their Mortgage Metrics report next week, based on data received from national banks and thrifts. The report covers nearly 35 million loans worth more than $6.1 trillion — roughly 60% of all first-lien mortgages in the country.
The report is expected to show increasing delinquencies and foreclosures in process for all first-lien mortgages held by national banks and federal thrifts, Mr. Dugan said, though new foreclosures decreased by 2.6% from the second quarter.
The report will show that borrowers re-defaulted after loan modifications relatively quickly. He said 36% of borrowers that received a loan modification in the first quarter were more than 30 days past due within three months. After six months, the rate was 53%, and after eight months, 58%, he said.
Mr. Dugan acknowledged, however, that some argue 60 days past due is a better indicator of a loan heading toward foreclosure.
"Even using that measure, the rate of increase in re-defaults was remarkably high, exceeding 35% after six months," he said.
