WASHINGTON — Homeowners who get a substantial cut in their monthly mortgage payments still stand a good chance of falling behind again, a report by two federal regulators says.
Nearly 40 percent of homeowners who received a loan modification that reducedmonthly loan payments by 20 percent or more were at least two months late again within a year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said Monday.
With the economy still weak and employers continuing to cut jobs, “even if you’ve gone through a modification, your situation may deteriorate,” said Fred Phillips-Patrick, director for credit policy at the thrift office.
That’s an ominous sign for the Obama administration’s plan to stem the foreclosure crisis. Lenders participating in the program have offered trial loan modifications to 760,000 eligible borrowers since it was launched in March. As of last month, 31,000 of themhad been made permanent, which requires at least three on-time payments and proof of income. Nearly the same number had dropped out of the program or were found to be ineligible.
The meager success rate means the $75 billion program may bring little relief to struggling homeowners. A record 14 percent of homeowners with a mortgage are either behind on their payments or in foreclosure. And that affects many more homeowners because deeply discounted foreclosures are hurting property values in many parts of the country, especially Arizona, California, Florida and Nevada.
But regulators on Mondaypointed to some encouraging signs among loans modified from April through June of this year.
About 20 percent of those borrowers had missed at least two out of three payments. That’s far better than the track record of loans modified during the same three months a year earlier. About 35 percent of those borrowers were delinquent within three months.
The report also found that lenders completed about 31,000 short sales - ones in which the sales price is lower than the mortgage balance - in the July-September quarter. While that’s up 22 percent from the prior quarter, lenders foreclosed on nearly four times as many homes.
All mortgages more than 30 days late or in foreclosure climbed to 12.8 percent in the quarter from 8.5 percent a year earlier, the report said. The number of seriously delinquent loans, or those more than 60 days late, climbed 71 percent to 2.11 million in the third quarter. The number of foreclosures in process climbed 80 percent to 1.09 million from a year earlier.
The number of prime mortgages 60 days or more overdue climbed to 838,000 as of Sept. 30, up 118 percent from a year earlier. Prime borrowers had credit scores of 660 or above at the time the loan originated.
Information for this article was contributed by John Gittelsohn of Bloomberg News.
Business, Pages 19 on 12/22/2009