SOURCE: OCC

Disclosure of National Bank and Federal Thrift Mortgage Loan Data

Executive Summary

This OCC and OTS Mortgage Metrics Report for the fourth quarter of 2009 provides performance data on first-lien residential mortgages serviced by national banks and federally regulated thrifts. The report covers all types of first-lien mortgages serviced by most of the industry’s largest mortgage servicers. The mortgages in this portfolio comprise more than 64 percent of all mortgages outstanding in the United States. The report covers nearly 34 million loans totaling almost $6 trillion in principal balances and provides information on their performance through the end of the fourth quarter of 2009 (December 31, 2009).

Overall mortgage performance declined for the seventh consecutive quarter, with the percentage of current and performing mortgages falling to 86.4 percent at the end of the fourth quarter of 2009. This decline is attributable to the 21.1 percent increase in mortgages 90 or more days past due to 4.7 percent of all mortgages in the portfolio at the end of 2009. The increase in seriously delinquent mortgages was most pronounced among prime borrowers, where the number of seriously delinquent mortgages increased by 16.5 percent during the fourth quarter. While the overall percentage of mortgages 30-59 days delinquent was stable in the fourth quarter, early stage delinquencies among prime mortgages increased slightly. The continued decline in performance of prime mortgages is a significant trend given that those mortgages accounted for 68 percent of all mortgages within the portfolio.

The increase in mortgages that were 90 or more days past due resulted from the progression of early stage delinquent mortgages combined with more mortgages being held in a delinquent status for longer periods before entering the foreclosure process. As a result, newly initiated foreclosures declined in the fourth quarter, and foreclosures in process were stable, as national banks and thrift servicers evaluated borrowers for loss mitigation and home assistance programs to prevent avoidable foreclosures.

While servicers reported that HAMP and proprietary foreclosure prevention programs will help a significant number of distressed homeowners, they indicated these programs are not expected to help all delinquent borrowers. In this regard, servicers reported that they expect new foreclosure actions to increase in the upcoming quarters as many of the mortgages that are seriously delinquent may eventually result in foreclosure as alternatives that prevent foreclosure are exhausted.

Large national bank and thrift servicers continued to work with troubled borrowers through the Administration’s “Home Affordable Modification Program” (HAMP) as well as proprietary programs. Servicers initiated 259,410 new HAMP trial plans and converted 21,316 existing trial plans to permanent HAMP modifications during the fourth quarter of 2009. In addition, servicers implemented 102,102 loan modifications and initiated 116,600 payment plans through proprietary programs during the quarter for borrowers who did not qualify under HAMP.

Overall, servicers implemented more than 594,000 new home retention actions in the fourth quarter of 2009, exceeding the 261,346 increase in total delinquent mortgages. While the number of new home retention actions was more than twice the number of new modifications implemented during the same quarter a year ago, it decreased 12.4 percent from the third quarter. Servicers reported that the fourth quarter decline reflected a reduction from the second and third quarter surge in new home retention actions that resulted from introduction of HAMP. The introduction of HAMP and other new programs resulted in the significant increases in new trial period plans for eligible borrowers that occurred in the second and third quarters of 2009. Manyof these borrowers remained in the trial payment period at the end of 2009 and have not yet received a permanent modification. Servicers reported that they continued to evaluate additional borrowers who may be eligible for the various homeowner assistance programs that are currently available. Some servicers also reported that they began requiring and verifying income information before initiating new proprietary trial payment plans and modifications during the fourth quarter, further contributing to the reduced number of new home retention actions.

More than 82 percent of all loan modifications implemented in the fourth quarter reduced monthly principal and interest payments for the borrower (compared to about 50% in Q1 2009). Consistent with program objectives, all HAMP modifications reduced monthly payments, and more than 82 percent of HAMP modifications reduced payments by more than 20 percent. Interest rate reduction and term extension after capitalization of missed payments and fees continued to be the predominant features of modifications. Principal deferral was included in nearly 6 percent of all modification, and in nearly 25 percent of HAMP modifications in the fourth quarter of 2009. Principal reduction was included in about 7 percent of all fourth quarter modifications, and was concentrated in loans held in the servicers’ own portfolios.

Recent vintages of modifications that emphasized sustainability through lower monthly payments performed better at 3 and 6 months after modification than older vintages of modifications. However, overall re-default rates remained high with more than half of all modifications falling 60 or more days past due by 9 months after modification,1 and more than half of all modification were 90 or more days past due by 12 months after modification. Nearly 40 percent of modifications that had reduced monthly principal and interest payments by more than 20 percent were 60 or more days past due 12 months after modification.

Mortgage Performance

• The percentage of current and performing mortgages in the portfolio fell to 86.4 percent—a decrease of 0.9 percent from the previous quarter—reflecting the seventh consecutive quarterly decline.

•The percentage of mortgages 90 or more days past due increased 21.1 percent from the previous quarter, resulting in seriously delinquent mortgages increasing to 7.1 percent of the servicing portfolio, an increase of 13.8 percent from the previous quarter. Serious delinquencies increased in all risk categories, with the greatest percentage increase in the prime category. The seriously delinquent rate for prime mortgages, the largest risk category of mortgages, increased by 75.1 percent from a year ago as economic conditions increasingly affected this category of borrowers.
Home Retention Actions: Loan Modifications, Trial Period Plans, and Payment Plans

•During the quarter, servicers implemented 594,095 new home retention actions—loan modifications, trial period plans, and payment plans. New home retention actions, including actions taken under HAMP, decreased 12.4 percent from the previous quarter.2 New home retention actions relative to the number of loans that were either seriously delinquent or in process of foreclosure also declined.

•Servicers continued to emphasize home retention efforts over foreclosures. Servicers initiated almost twice as many modifications and payment plans as new foreclosure proceedings (see Table 16). For every two forfeited homes, servicers started more than seven new home retention actions during the fourth quarter (see Table 37).

•More than 84 percent of all modifications changed more than one loan term. Interest rate reductions were used in 84.2 percent of all mortgages modifications implemented in the fourth quarter of 2009. Term extensions were used in 44.1 percent of all modifications, principal reductions were used in 6.8 percent, and principal deferral was used in 6.1 percent of the modifications implemented during the fourth quarter.3

•For HAMP modifications, interest rate reduction and term extension following capitalization of missed payments and fees were the prevailing actions. Principal deferral was used in 26.8 percent of HAMP modifications, a higher rate than in other modification programs.

•Overall, modifications made during the fourth quarter lowered monthly principal and interest payments in 82.2 percent of all loan modifications, up nearly 56 percent from a year ago, as servicers emphasized payment sustainability.4 All HAMP modifications reduced borrower principal and interest payments.

Modified Loan Performance

•Modifications made in the second and third quarters of 2009 performed better at 3 months and 6 months after modifications than older vintages, corresponding to the increasing prevalence of modifications that reduce borrower monthly principal and interest payments. These lower re-default rates provide an early indication of potentially better performance over time. However, re-default rates remained high with more than half of all modifications falling more than 60 days past due by 9 months after modification.

•Modifications on mortgages held in the servicers’ own portfolios continued to perform better than modified mortgages serviced for others. This difference may be attributable to differences in modification programs and the servicers’ additional flexibility to modify loan terms to achieve greater sustainability. Modified government-guaranteed mortgages showed the highest delinquency rates at 6, 9, and 12 months following modification relative to other investor types

Modified Loan Performance, by Change in Monthly Payments

• Modifications that decreased monthly payments continued to show significantly lower re-default rates than modifications that left payments unchanged or increased payments (see Table 4). While lower payments reduce monthly cash flows to investors, the payments may also result in longer-term sustainability of the payments. After 12 months, 39.8 percent of modifications that decreased monthly payments by 20 percent or more were seriously delinquent. In contrast, 67.0 percent of modifications that left payments unchanged and 68.5 percent of modifications that increased payments were 60 or more days delinquent after same period.

Foreclosures and Other Home Forfeiture Actions

• Servicers implemented almost twice as many new home retention actions as new foreclosures and more than three-and-a-half times more new home retention actions than completed home forfeiture actions (see Table 5).5 New home retention actions relative to newly initiated foreclosures increased during the fourth quarter as the decline in new foreclosures exceeded the drop in home retention actions. Conversely, new home retention actions relative to completed foreclosures and other home forfeiture actions declined because of the combined effects of reduced retention actions and increased forfeiture actions.

• Short sales continued to grow as an alternative to foreclosure, increasing 22.2 percent to 37,584—more than doubling from the same quarter a year ago (see Table 6). Completed foreclosures increased 8.6 percent from the prior quarter and 35.7 percent from a year ago reflecting the continued increase in seriously delinquent mortgages and the large inventory of foreclosures in process.

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 Disclosure of National Bank and Federal Thrift Mortgage Loan Data