Mortgage Modifications, No Principal Reductions, Just More Pain For Consumers
For many months/years now, we’ve all been treated to the mantra that mortgage modifications were the panacea for the foreclosure problem. Few recognize that mortgage modifications are bad news in the long run and that they mask and conceal very troubling underlying problems. In this report it’s clear that Mortgage Modifications do not result in principal reduction in the vast majority of case…this only prolongs the misery and devastation.
Worse, once again, the report shows how the banking industry continues to reap great benefits in the midst of foreclosure while consumers continue to suffer.
Through accounting and regulatory relief, among other things, the banking industry benefits…while at the same time they withhold the thing that is most valuable to consumers (and the overall community) principal reductions.
Not only do the banks continue to receive the benefit of regulatory acquiescence, the continued capitalization of outstanding debt in the context of mortgage modifications show how the banks actually continue to benefit while consumers suffer…..owing more and more and paying more interest on the ever growing outstanding debt. And while consumers may not ever be able to repay these debts, I suspect that the ever increasing balances produce even larger tax benefits for the institutions.
The OCC Mortgage Metrics Report presents data on first-lien residential mortgages serviced by seven national banks and a federal savings association with the largest mortgage-servicing portfolios.1 The data represent 50 percent of all first-lien residential mortgage outstanding in the country and focus on credit performance, loss mitigation efforts, and foreclosures. More than 91 percent of the mortgages in the portfolio were serviced for investors other than the reporting institutions. At the end of the third quarter of 2013, the reporting institutions serviced 25.6 million first-lien mortgage loans, totaling $4.4 trillion in unpaid principal (see table 6).
The loans reflected in this report represent a large percentage of the overall mortgage industry, but they do not represent a statistically random sample of all mortgage loans.
At the end of the third quarter of 2013, the portfolio of mortgages in this report included 25.6 million loans with $4.4 trillion in unpaid principal. The number of mortgages in the portfolio decreased 14.0 percent from a year earlier. The unpaid principal of those loans decreased 14.3 percent from a year earlier. Prime loans were 74 percent of the servicing portfolio at the end of the quarter. Subprime loans were 6 percent of the servicing portfolio at the end of the quarter, while Alt-A loans were 10 percent. The percentage of prime loans has increased because of higher defaults of lower quality loans, increased origination of prime loans, and some loans being sold to nonreporting servicers.
GSE mortgages made up 57.8 percent of the mortgages in this report. GSE mortgages perform better than the overall portfolio because they contain more prime loans. The percentage of GSE mortgages that were current at the end of the quarter was 95.7 percent, up from 93.6 percent a year earlier.
Of the 19,175 HAMP modifications implemented during the third quarter of 2013, 30.3 percent went to mortgages serviced for the GSEs, 31.7 percent to mortgages serviced for private investors, 10.3 percent to government-guaranteed mortgages, and 27.7 percent to loans held in the reporting servicers’ portfolios.
Servicers capitalized missed fees and payments in 83.6 percent of modifications implemented during the quarter, reduced interest rates in 78.9 percent, and extended loan maturity in 69.3 percent. Servicers reduced some portion of the unpaid principal in 13.6 percent of mortgage modifications completed during the quarter, an increase of 11.9 percent from the previous quarter but a 20.8 percent decrease from a year earlier. Servicers deferred repayment of some portion of the unpaid principal in 25.3 percent of modifications made during the quarter, up 33.3 percent from a year earlier. Because most modifications changed more than one term, the sum of the individual actions exceeded 100 percent of total modifications.
THE MOST IMPORTANT PART OF THIS REPORT:
Modifications of mortgages serviced for the GSEs accounted for 33.8 percent of all modifications made during the third quarter of 2013. Government-guaranteed loans received 28.9 percent of all modifications, mortgages serviced for private investors received 21.3 percent, and mortgages held in the servicers’ own portfolios received 15.9 percent of all third-quarter modifications. Capitalization of missed payments and fees, interest-rate reduction, and term extension remained the primary types of modification actions. Servicers used principal reduction most frequently in modifying loans held in portfolio or serviced for private investors because Fannie Mae and Freddie Mac do not allow principal reduction.
Consistent with total modification actions, the prevailing actions among HAMP modifications were capitalization of past-due interest and fees, interest-rate reduction, and term extension.
Mortgage modifications may increase monthly payments when borrowers and servicers agree to add past-due interest, advances for taxes or insurance and other fees to the loan balances and re-amortize the new balances over the remaining life of the mortgages.
