Mortgage Note Modifications

Yes, delinquency rates exclude home loans already in foreclosure. At the fourth quarter’s end, that figure stood at 1.5 million home mortgage loans which is about 3.30 % of all mortgages on the market.  “Foreclosure inventory jumped sharply in the fourth quarter, even though the rate at which home mortgages were entering foreclosure remained unchanged,” said the association’s chief economist, Jay Brinkmann.  He attributed that primarily to state and local moratoriums on foreclosure sales, as well as the November decision by Fannie Mae and Freddie Mac to halt such sales, loan servicers’ reluctance to proceed with evictions over the December holidays, and overburdened legal processes in some areas.

A flat foreclosure rate does not necessarily mean housing’s downturn has hit bottom. The survey showed that the percentage of loans 90 days past due increased in the fourth quarter, but that foreclosure actions on a large number did not occur as servicers tried to modify loans and deal with investors who own securities of which these mortgage loans are a part.   Because loan servicers have been unwilling to talk with homeowners who are not behind in their payments, Brinkmann said, some “borrowers are running their accounts 90 days delinquent in order to qualify for certain modifications.”

A provision of the Obama administration’s plan to help cut the delinquency rate allows borrowers who are current on their mortgages to negotiate with servicers about loan modification options.  Gibran Nicholas, chairman of the CMPS Institute, which certifies mortgage bankers and brokers, complained that the plan’s guidelines lack a maximum total-debt ratio.  For example, modification might reduce a borrower’s mortgage payment to the plan’s target 31% of monthly income, but his or her total overall debt load, including car loans and credit cards, could be 75%.  “If the borrower defaults on the loan modification, taxpayers are on the hook for more money,” Nicholas said.   Read the complete article> Mortgage Foreclosures Rise in 4th Quarter

The number of homeowners falling behind on their mortgages or already in foreclosure surged to record highs during the fourth quarter, according to industry data released yesterday.  About 7.88% of mortgage loans were delinquent during the quarter, according to the survey by the Mortgage Bankers Association, an industry group. It is up from 5.82 % during the same period a year earlier. Another 3.3 % were in the foreclosure process, up from 2.04% a year ago. Both figures set records. Taken together, they mean that more than 11% of home mortgages are now in some form of distress.

The trend highlights the challenge facing the Obama administration as it launches a foreclosure prevention program that will pay incentives to lenders to encourage them to lower homeowners’ payments to affordable levels. The administration aims to help up to 9 million homeowners either refinance mortgages or attain a loan modification that keeps them out of foreclosure.

The House is also expected to vote today on legislation to allow bankruptcy judges to modify the mortgages of struggling borrowers. The financial services industry has fought the legislation for years, but after the foreclosure crisis deepened and Democrats gained greater control in Congress, the legislation gained traction.   

Increasingly, homeowners are becoming delinquent after losing a job rather than because they are struggling with a risky loan, the Mortgage Bankers Association and analysts said. Falling home prices are exacerbating the problem, they said.  “The collapse in former bubble markets drove the first wave of delinquencies and foreclosures. Now, we’re experiencing a second, more powerful wave,” Mike Larson, a housing analyst with the Weiss Group, an economic research firm in Florida, said in a research note.

There is also a large backlog of homes that are seriously delinquent, meaning payments are 90 days or more late. That potentially swells the foreclosure inventory, according to the data. About 6.3% of mortgage loans were seriously delinquent during the fourth quarter, compared with 3.62% during the same period a year earlier.

The backlog is probably tied to foreclosure moratoriums throughout the country, the industry group said. Also, some areas have been overwhelmed by an increase in foreclosures and local governments have been unable to process foreclosures quickly. “Normally servicers would have initiated foreclosure actions on a significant portion of these loans but delayed doing so for a variety of reasons,” Jay Brinkmann, the group’s chief economist, said in a statement.

The hardest-hit states continue to be California, Florida and Nevada, but Louisiana, New York and Georgia have also seen sharp increases in delinquencies, indicating that the recession is spreading, the group said.  Delinquency rates in the Washington region are below the national average. In the District, 4.38% of loans included in the survey were seriously delinquent or in foreclosure during the fourth quarter, compared with 2.07% a year earlier. About 5.52% of home mortgages in Maryland were in similar trouble, compared with 2.54% a year earlier. The rate locally was lowest in Virginia, where 3.83 % of loans were either seriously delinquent or in foreclosure. That is up from 2.13% a year earlier.