The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) have issued their second report on mortgage performance, showing continued increases in delinquencies and foreclosures in process.
While delinquencies, foreclosures in process and other actions leading to home forfeiture continued to rise, newly initiated foreclosures dropped by 2.6% from the second to the third quarter of 2008.
Loan modifications continued to grow more quickly than other loss mitigation strategies, as banks and thrifts worked with borrowers to keep them in their homes while minimizing losses. The number of new loan modifications increased 16% in the third quarter to more than 133,000.
New in this report are redefault rates on modified loans. The number of loans modified in the first quarter that were 30 or more days delinquent was 37% after three months and 55% after six months. The number of loans modified in the first quarter that were 60 or more days delinquent was 19% at three months and nearly 37% after six months.
"One very troubling point is that, whether measured using 30-day or 60-day delinquencies, redefault rates increased each month and showed no signs of leveling off after six months and even eight months," says Comptroller of the Currency John C. Dugan. "This trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable."
Newly initiated home retention actions – loan modifications and payment plans – increased by 13% from the second quarter to the third quarter, according to the report. Loans held on the books of servicing banks and thrifts had the lowest redefault rates at 35.06% after three months, and 50.86% after six months, compared with loans serviced on behalf of third parties.
The lower redefault rate for loans held by servicers may suggest that there is greater flexibility to modify loans in more sustainable ways when loans are held on a servicer's own books than when loans have been sold to third parties.
The entire report can be viewed at http://occ.gov/ftp/release/2008-150a.pdf.