Monday, December 21, 2009

OCC and OTS: Foreclosures, Delinquencies increase in Q3

by Bill McBride on 12/21/2009 10:40:00 AM

From Jim Puzzanghera at the LA Times: Foreclosures for major sector of bank industry topped 1 million in third quarter, report says

The number of home foreclosures for a major sector of the banking industry topped 1 million for the first time in the third quarter of the year as struggles spread to homeowners with prime loans and modified mortgage payments, according to new data released today by ... the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
...
The report highlighted some troubling trends as ... Difficulties increased for holders of prime mortgages, with the percentage of those loans that were 60 days or more delinquent increasing to 3.2%, up almost 20% from the second quarter and more than double the rate of a year ago.

In addition, holders of mortgages whose payments had been lowered through government or private modification plans re-defaulted at high rates. More than half of all homeowners with modified loans fell 60 days or more behind in their payments within six months of the modification taking place.
Here is the press release and report.

Much of the report focuses on modifications and recidivism, but this report also shows how the foreclosure problem has moved to prime loans.

Seriously Delinquent Loans Click on graph for larger image.

This report covers about 65% of all mortgages. There are far more prime loans than subprime loans - and the percentage of delinquent prime loans is much lower than for subprime loans. However, there are now significantly more prime loans than subprime loans seriously delinquent. And prime loans tend to be larger than subprime loans, so the losses from each prime loan will probably be higher.
Overall, mortgage performance continued to decline as a result of continuing adverse economic conditions including rising unemployment and loss in home values. The percentage of current and performing mortgages fell to 87.2 percent of the servicing portfolio. Seriously delinquent mortgages loans 60 or more days past due and loans to delinquent bankrupt borrowers—rose to 6.2 percent of the servicing portfolio. Foreclosures in process increased to 3.2 percent, while new foreclosure actions remained steady for the third consecutive quarter at 369,209. Of particular note, delinquencies among prime mortgages, the largest category of mortgages, continued to climb. The percentage of prime mortgages that were seriously delinquent in the third quarter was 3.6 percent, up 19.6 percent from the second quarter and more than double the percentage of a year ago.
emphasis added
Seriously Foreclosure Activity
The second graph shows foreclosure activity.

Notice that foreclosure in process are increasing sharply, but completed foreclosures were only up slightly.

The next wave of completed foreclosures is about to break, but the size of the wave depends on the modification programs.

There was some good news on redefaults:
The percentage of modified loans 60 or more days delinquent or in process of foreclosure increased steadily in the months subsequent to modification (see Table 2 [see below]). Modifications made after the third quarter of 2008 appeared to perform relatively better than older vintages. The most recent modifications made in the second quarter of 2009 had the lowest percentage of mortgages (18.7 percent) that were 60 or more days delinquent three months subsequent to modification. This lower three-month re-default rate may be an early indicator of sustainability for loan modifications that reduce monthly payments.
OCC Table 2 For earlier modifications, the redefault rates was around 60% after 12 months, but the little bit of good news is "only" 18.7% of recent modifications have redefaulted with 3 months (this is lower than the previous modifications). I expect a large percentage of the homeowners to redefault eventually because the modification efforts still leave the homeowners with significant negative equity (they are more renters than owners).

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