Housing Market Still Struggling

WASHINGTON — The number of current and performing mortgages dropped 1.5% to 87% in the third quarter — the sixth consecutive quarterly drop, regulators said Monday.

The report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision also showed an increase in foreclosures, which rose to 3.2% and have now surpassed the 1 million mark.

Delinquencies increased among all different loan categories, with serious delinquencies rising to 6.2% of national banks and thrifts' servicing portfolios. Payment option adjustable-rate mortgages performed the worst, making up 16% of seriously delinquent loans and 11.9% of foreclosures in process. Serious delinquencies from mortgages guaranteed by government entities increased 7.5% from the previous quarter, while those in the foreclosure process jumped 2.5%.

Prime loans also had a deterioration. Seriously delinquent prime loans increased to 3.6%, more than double their level a year earlier.

Home-retention efforts increased but servicers still faced an uphill challenge making trial workouts permanent and preventing re-default rates, regulators said. Banks and thrifts implemented more than 2.4 million loan modifications, trial period plans or payment plans between Jan. 1, 2008, and Sept. 30, 2009.

Servicers began 273,913 trial modifications under the administration's Home Affordable Modification Program during the third quarter, bringing the total number of trial modifications to 354,324 since the program started in March. But only 781 modifications, or less than 1%, became permanent. Borrowers have to make three consecutive payments under Hamp for their workout to become permanent. The regulators attributed the low conversion rate to insufficient servicer staff and systems and a lack of documentation from borrowers.

Loans where the servicers lowered the interest payment or monthly principal had the lowest re-default rate. The administration's program gives the option of principal reduction, but stresses interest rate reduction to 31% of a borrower's debt-to-income level.

Modifications that lowered monthly principal and interest rates increased to 80.1% of all loans modified during the third quarter. Modifications that increased monthly payments decreased to 16.4% of all modifications. Modifications that left the payment unchanged decreased to 3.5%.

Regulators said newer modifications made during the second quarter of 2009 showed the lowest re-default rate. Of those performed in the period, 18.7% re-defaulted after three months.

Modifications of mortgages held in portfolios continued to perform better than those that are securitized.

Of the portfolio loans, 41.7% re-defaulted after a year while 65.9% of government-guaranteed loans re-defaulted after a year and 61.3% of private loans re-defaulted after a year.

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