One in Ten Homeowners with a Mortgage is Delinquent

Written by: Steve Cook   Wed, September 30, 2009 Crisis Watch, featured


One out of ten American homeowners with a mortgage were seriously delinquent in the second quarter and more than half the homeowners whose mortgages have been modified to reduce monthly payments are re-defaulting within a year, according to a new study released today by two Federal financial regulatory agencies.

 The grim report found that only 88.6 percent of all mortgages in America were current in the second quarter, a 1.4 percent decline from the first quarter of the year.  Delinquency rates rose for every category of mortgage, not just subprime and ARM loans.

All categories of delinquencies increased from the previous quarter, with serious delinquencies-loans 60 or more days past due and loans to delinquent bankrupt borrowers-reaching 5.3 percent of all mortgages, an increase of 11.5 percent from the previous quarter.  Foreclosures in process reached 2.9 percent of all mortgages, a 16.2 percent increase.

The percentage of prime loans that was seriously delinquent reached 3 percent, up10.5 percent from the previous quarter and is 13 percent higher than a year ago. The percentage of Alt-A loans that was seriously delinquent in the second quarter was 10.3 percent, an 11.1 percent increase from the previous quarter.  The percentage of subprime loans that was seriously delinquent was 17.8 percent, a 12.9 percent increase from the previous quarter.

 Mortgages guaranteed by the U.S. government, primarily through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), also showed higher delinquencies than the overall servicing portfolio. Serious delinquencies increased to 7.5 percent of all government guaranteed mortgages, up from 6.8 percent in the previous quarter. 

 Last week the Administrator of the FHA announced a number of initiatives to reduce FHA’s loan losses by sharing more risk with servicers following news reports that the agency’s capital reserves would fall below a congressionally-mandated floor, requiring the agency to ask Congress for more funding. However, HUD officials said they do not plan to ask for additional finds.  “As we begin to move from recession to recovery, these changes will not only ensure FHA’s financial strength but they will also help to further strengthen our nation’s economy,” said HUD Secretary Shaun Donovan at the time.

The report by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) classified the 114,538 troubled homeowners now participating in three-month trial periods to modify their loans under the Administration’s Making Home Affordable program as payment plans, not modifications.  The program did not begin in earnest until the second quarter.

Modifications implemented before the Administration’s program got up and running during the second quarter are not faring well.  Most of those put in place in the first and second quarter of 2008 have failed.   Owners have re-defaulted and risk losing their homes a second time.  Twelve month re-default rates were especially high among loans guaranteed by Federal agencies (59.1 percent) Fannie Mae (57 percent) and  Freddie Mac (52.4 percent). Yesterday Fannie reported that its July delinquency rate on single family homes had soared to 4,17 percent.

For a copy of the report, click on the link at the top of the story.

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