Efforts to Keep Households in their Homes is on the Rise

Written by: David Lereah   Wed, September 30, 2009 Beyond Today's News, Market Activity

Government efforts to keep people in their homes are working according to a government report released this week.

According to the Mortgage Metrics Report, a report issued by the Office of the Comptroller of the Currency, OCC and the Office of Thrift Supervision, OTS, home retention actions increased 22 percent during the second quarter of 2009. Compared to the first quarter of 2008, home retention actions have increased by almost 75 percent.

The report also cited that mortgage delinquencies rose to an 8.5 percent share of total mortgages that are serviced in the second quarter, an 11.9 percent rise from the previous quarter. Similarly, foreclosures in process rose to a 2.9 percent share, representing a 16.9 percent increase from the previous quarter. The report covers 34 million mortgages totaling $6 trillion.

Most of the progress on home retention in the second quarter can be attributed to Obama’s Making Home Affordable program which began during the quarter. The program is primarily a loan modification program which requires a three month trial period called a payment plan, before loans can be permanently modified. As borrowers successfully complete the trial period, their loan is then re-classified as a loan modification. Payment plans increased by 73.9 percent, while loan modifications decreased by 25.2 percent during the second quarter compared to the first quarter. During the period, 114,558 loans entered into payment plans compared with a 47,995 drop in loan modification loans. The agencies mentioned that in the future, successfully completed trial payment plans will be reported as loan modifications.

Borrowing households’ monthly mortgage payments (consisting of principal and interest) decreased in 78 percent of new modifications compared to 54 percent of new modifications during the first quarter. The share of loan modifications that actually reduced principal balances rose to 10 percent in the second quarter compared to a 3.1 percent share in the previous quarter.

The report brought positive news for Obama’s Making Home Affordable program; reporting that some progress is being made in home retention activity. With the program in full swing during the third quarter, more progress is expected. However, foreclosure growth is not expected to subside during the next two years due to rate resets on option ARMs and interest only mortgage loans. Mounting foreclosures are likely to test the effectiveness and efficiencies of government home retention programs.

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