Loan Modifications Go Up, But More Borrowers Fall Behind
A government report released yesterday showed a growing number of homeowners falling into default, despite a substantial rise in loan modification agreements in the first quarter.
The report, released by the Comptroller of the Currency and the Office of Thrift Supervision, showed that loan modifications rose 55% in the previous quarter from late 2008 to the first quarter of 2009, and a whopping 172% from one year ago.
However, the number of seriously delinquent prime borrowers—those who have missed more than two payments—went up 20.3% during 2009 Q1, and rose by 163.7% compared to the same quarter in 2008. The rise was less noticeable for delinquent sub-prime borrowers, rising only 1.5% from the previous quarter and 544.9% from the previous year.
Prime borrowers, who are generally considered low-risk, are falling behind on payments as more of them go into unemployment and home values continue to drop. This shifts the general notion that the housing crisis only affected sub-prime loans.
The nature of loan modification deals is also believed to be a factor. Most of the loan modifications involve a reduction on interest rates or an extension of the loan terms. However, principal reductions remain rather uncommon, accounting for only 1.8% of loan modification deals.
Comptroller of the Currency John C. Dugan remains optimistic despite the rise in delinquencies. In a statement to the press, he said that the effort mortgage servicers are putting into loan modification programs will bring about significant improvements in the following months.
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