Are Loan Modifications Working?

Author: Rich Barnhart

Author: Rich Barnhart

Mortgage Metrics Report

Last March the Obama administration announced the Making Homes Affordable (MHA) program to help as many as 9 million households struggling with their mortgage payments, primarily utilizing loan modification or refinance. The success of the program has yet to be determined, but yesterday the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) released their Mortgage Metrics report that, depending how you look at it, could be good news or bad news.

To fully understand the OCC report, you have to first understand their definitions. The MHA program provides for a 3 month trial period in which mortgagors are put on a payment program. If the payment program is successful, then they can be converted to a permanent loan modification. So, while actual loan modifications were down 25.2% from the first quarter to the second quarter, payment programs were up 73.9%. The true success of the program won’t be known until future reports, but the report shows a re-default rate for modified loans in 2008 and 2009 after 6 months at almost 58%! Even if re-default improves significantly, something else needs to be done.

Other findings in the OCC Report

  • The number of loan modifications that included a reduction in principal balance increased to 10%, up from 3.1%.
  • Mortgage delinquencies increased to 8.5% in the second quarter, an increase of 11.9%.
  • Foreclosures in process increased to 2.9%, an increase of 16.9%.
  • New short sales increased by 34.8% to 23,102, but remained a small percentage of total loss mitigation actions.NOTE: The report also acknowledges that short sales have less adverse impact on borrower’s credit than foreclosure.

As we anxiously await the next report, what we cannot afford to wait for is details on the Foreclosure Alternatives Program (FAP). As I wrote in my post “The Housing Recovery Needs Your Help”, the FAP details are long overdue and loan modifications alone (even if they are working) are not enough to reverse the housing crises. What are we waiting for?

Blog Author:

Rich Barnhart

Rich is the broker and owner of By The Sea Realty and a frequent contributor to the company's real estate blog.
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