Lenders are boosting their attempts to avoid home foreclosures, but fewer than half of loan modifications made at the end of last year actually reduced borrowers’ payments by more than 10 percent, data released Friday show.The report, based on an analysis of nearly 35 million loans worth more than $6 trillion, was published by the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision. It provides the most detailed and broad analysis to date of efforts to stem the foreclosure crisis.
Among loan modifications made in the October-December quarter, about 37 percent resulted in a drop in payments of more than 10 percent, compared with about one-fourth in the first nine months of the year. Regulators saw that growth as a positive sign.
“The trend toward lowering payments to make home mortgages more affordable is moving in the right direction,” said John Bowman, acting director of the Office of Thrift Supervision.
Still, nearly one in four loan modifications in the fourth quarter actually resulted in increased monthly payments. That situation can happen when lenders add fees or past-due interest to a loan and spread those payments out over the 30- or 40-year period.
Perhaps unsurprisingly, the report found that loans were far less likely to fall back into default if a borrower’s monthly payment is reduced by a healthy amount.
Nine months after modification, about 26 percent of loans in which payments had dropped by 10 percent or more had fallen back into default. That compares with about half of loans in which the payment was unchanged or increased.
“This new data shows that, in the current stressful environment, modification strategies that result in unchanged or increased mortgage payments run the risk of unacceptably high re-default rates,” Comptroller of the Currency John Dugan said in a statement.
The Obama administration is aiming to help up to 9 million borrowers stay in their homes through refinanced mortgages or modified loans. It is spending $75 billion to provide lenders an incentive to alter more loans.
Still, the faltering economy, driven down by the collapse of the housing bubble, is causing the housing crisis to spread.
Among the loans surveyed in the report, just over 10 percent were delinquent or in foreclosure, compared with 7 percent at the end of September, the report said. Delinquencies are increasing the most among prime loans made to borrowers with strong credit, it said.