Thursday, July 16, 2009

More JPM Comments on Modifications and Foreclosures

by Calculated Risk on 7/16/2009 11:46:00 AM

A few more conference call comments on mods and foreclosures: (ht Brian)

“we definitely saw as all did a build up in loans that were delinquent in all of the delinquency statistics given that we suspended foreclosures during the moratoriums in the Fall and Spring of this year which are described on that side of the page. What I would say is that those will sit there longer in a delinquency bucket so our in prime and subprime you see elevated delinquency stats but we don't expect it to have meaningful accounting or Income Statement impact because as we came out of those moratoriums we originally written down those loans and made adjustments to the writedowns to take account of the longer timeliness to move them through into Real Estate owned and foreclosure, if appropriate, or modify them. So then on modifications, again, I said at the beginning we've approved 138,000 modifications for the Second Quarter here, but those don't have any meaningful impact on our Second Quarter stats, and that's because we have to see three-monthly payments under the terms of the new modification before we'll reunderwrite that loan and it comes out of delinquency and in the meantime, it just continues to roll through delinquency buckets as it otherwise would have per the contract of the term. When we do see, if we do see and we hope to see good success with these modifications perhaps next quarter and in future quarters we'll talk about just the success rate but given that these are largely speaking payment reduction modifications that are done reunderwritten with real income stats and so fourth, we are hopeful that we see some good rates of success in the trial period, but when we do modify, you just see the description at the bottom of how we take into account when we adjust our reserves at the time we modify the expected remaining losses including an assumption for redefault”
Next quarter we should see the results of the modicifications.
“when you look at home equity prime and subprime, you'll see the charge-offs continue to trend higher versus prior periods and in a couple of the cases prime and subprime we up our future [loss] guidance but the second point is that across each of these portfolios, the flow into the early delinquency buckets and the dollar value of loans sitting in the early delinquency buckets has started to stabilize over the last 60-90 days across-the-board. That's a new trend versus what we've seen previously and obviously, we don't know if it's going to sustain itself but obviously if it did that would have good implications for future loss trends and could mean that we could be getting near the end of needing to add to reserves in these portfolios.”
All the other data (like from the MBA) is showing rising delinquencies, especially for prime loans - so this will be something to watch too.