Disclosure of National Bank and Federal Thrift Mortgage Loan Data

First Quarter 2009

Executive Summary

This OCC and OTS Mortgage Metrics Report for the first quarter of 2009 provides performance data on first lien residential mortgages serviced by national banks and federally regulated thrifts.  The report provides a comprehensive picture of mortgage servicing activities of most of the industry's largest mortgage servicers, covering approximately 64 percent of all mortgages outstanding in the United States and incorporating information on all types of mortgages serviced, including subprime mortgages.  The report covers more than 34 million loans totaling more than $6 trillion in principal balances and provides information on their performance from the beginning of 2008 through the end of the first quarter of 2009.

Negative trends continued for mortgage data for the first quarter of 2009, but with some hopeful signs on the modification front.  Continued economic pressures, including rising levels of unemployment and a continuing decline in property values, resulted in an increased number of seriously delinquent mortgages and newly initiated foreclosure actions.  The first quarter data also showed a relatively greater increase in seriously delinquent prime mortgages compared with other risk categories and a higher number of foreclosures in process across all risk categories as a variety of moratoria on foreclosures expired during the first quarter of 2009.

Early stage delinquencies declined and the overall delinquency rate for the mortgage portfolio did not materially change, but these seemingly positive developments are at least partially explained by seasonal effects and may not represent reliable trends.  An unambiguously positive development was a significant increase in the number of modifications made by servicers.  In addition to the increase in overall numbers of modifications, servicers implemented a higher percentage of modifications that reduced monthly payments than in previous quarters.  Modifications with lower payments continued to show fewer delinquencies each month following modification than those that left payments unchanged or increased payments.  The net result was that an overall worsening of conditions was met with a strong response in the form of increased modifications.

The impact of this increase in modifications, particularly those with reduced monthly payments, will only be seen in future data.  Likewise, the number of modifications recorded in this report does not reflect actions taken under the Administration's "Making Home Affordable" program, which was announced in March and began to be implemented after this reporting period.  The same is true of initiatives to enhance the Federal Housing Administration's (FHA) "Hope for Homeowners" program.  Nor do these numbers reflect the OCC's and OTS's direction to servicers to review the modifications they had previously undertaken to ensure they are affordable and sustainable.

Mortgage Performance

• About 90 percent of all mortgages in the portfolio were current and performing at the end of the first quarter of 2009, about the same percentage as the previous quarter. Despite that steady performance overall, serious delinquencies—loans 60 or more days past due and loans to delinquent bankrupt borrowers—increased by nearly 9 percent from the previous quarter to 5 percent of all mortgages in the portfolio at the end of the quarter. This increase in seriously delinquent mortgages was offset by a decline in early stage delinquencies—loans that were 30 to 59 days past due. However, the decline in early stage delinquencies during first quarter of 2009 is at least partially explained by seasonal effects typically seen in first quarter mortgage data and may not represent a sustainable trend, while rising serious delinquencies are a leading indicator of increased foreclosure actions in the future.
• Prime loans, which represented two-thirds of all mortgages in the portfolio, experienced the highest percentage increase in serious delinquencies, which climbed by more than 20 percent from the prior quarter to 2.9 percent of all prime mortgages.  Subprime serious delinquencies increased by 1.5 percent from the previous quarter, to 16.7 percent of subprime mortgages.  A number of factors contributed to the increase in seriously delinquent prime loans, including rising levels of unemployment, a continuing decline in property values, and high debt levels.
• Foreclosures in process rose to 844,389 and represented 2.5 percent of all serviced loans, as a variety of moratoria on foreclosures expired during the first quarter of 2009 and the recession continued to exert pressure on borrowers.  The increase in the number of foreclosures in process represented a 21.8 percent jump from the previous quarter and 72.6 percent rise from the first quarter of 2008.

Home Retention Actions: Loan Modifications and Payment Plans

• Increased emphasis on loan modifications drove an overall increase in home retention actions, as shown in the table below. Newly initiated loan modifications reached 185,156 during the quarter—rising by 55.3 percent from the previous quarter and 172.3 percent from the first quarter of 2008. The impact of this increase in modifications on reducing foreclosures and enabling borrowers to remain current on their loans will only be seen in future data. Likewise, modification data through the first quarter do not reflect the impact of the Administration's "Making Home Affordable" program, which was announced in March and began to be implemented after this reporting period.

• Modifications during the first quarter of 2009 resulted in lower monthly principal and interest payments on 54.1 percent of all modified loans, as servicers focused on achieving more sustainable mortgage payments. The percentage of modifications that reduced payments by 20 percent or more increased to 29.3 percent of all modifications made in the first quarter of 2009, up 19.2 percent from the previous quarter. Modifications that increased monthly payments declined to 18.5 percent of all modifications during the quarter, down from 25 percent in the fourth quarter and 33.5 percent in the third quarter. Actions that left payments unchanged increased slightly to 27.3 percent.²
• New to this report are data on the types of actions taken to modify loans. Nearly two-thirds of modifications were "combination modifications" that involved two or more changes to the terms of the loan. Capitalization of delinquent interest, fees, and advances, combined with interest rate reductions and extended maturities were the predominant combination of modifications made during the first quarter. Interest rate and payment freezes, principal reductions, and principal deferrals were less prevalent. Of the 185,156 mortgages that were modified in the first quarter of 2009, 70.2 percent included a capitalization of missed payments and fees, 63.2 percent reduced the interest rate, and 25.1 included an extended term. By comparison, 12.6 percent of the mortgages received modifications that froze the interest rate, 1.8 percent included a reduction of principal, and 1.1 percent included a deferral of principal.³
• Home retention actions—loan modifications and payment plans—generally increased at a faster pace than new foreclosures during the first quarter. Subprime mortgages had more than twice as many new home retention actions as new foreclosures during the quarter. By contrast, prime mortgages had more new foreclosures than home retention actions during the quarter. Servicers report that in many cases, prime borrowers had income levels that declined too much or incurred too much debt to qualify for effective loan modification.

Modified Loan Performance

• Also new to the report are data on the longer term sustainability of modifications by vintage, comparing the performance of modifications implemented quarter by quarter during 2008 and in the first quarter of 2009 to date. The table below shows that older vintage modifications have higher delinquency and foreclosure rates, at least partially reflecting the normal increase in defaults over time. Obtaining additional performance data on more recent vintages in future reports will be especially important in assessing the changes made to loan modification programs since the beginning of 2008.

• As shown below, the percentage of loans that were 60 or more days delinquent or in the process of foreclosure rose steadily in the months subsequent to modification for all vintages where data were available. It is noteworthy that modifications implemented in the first quarters of 2008 re-defaulted at a lower rate than those in the third quarter, measured at the same number of months after modification. Those modifications implemented in the fourth quarter of 2008 have re-defaulted at a slightly lower rate than the preceding quarter. It is too early to determine whether this early data from modifications made in the fourth quarter of 2008 portends a sustained improvement in the performance of recent modifications.³

• As noted in prior reports, modifications on loans held in the servicers' own portfolios continued to perform better than loans serviced for Fannie Mae, Freddie Mac, Ginnie Mae, or private investors.  This difference in re-default rates may be attributable to servicers having greater flexibility to modify terms on loans held in their portfolios to achieve greater affordability and sustainability.  These data do not reflect modifications made under the "Making Home Affordable" program, which began to be implemented after the end of this reporting period.

Modified Loan Performance, by Change in Monthly Payments

• Modified loan performance included in this report provides additional support for the premise that lower payments produce more sustainable modifications, repeating the finding in the fourth quarter report. While delinquencies increased over time for all categories, delinquencies where payments were reduced by 20 percent or more were well below levels in the categories where modifications left payments unchanged or increased, across all vintages. For servicers and investors, determining the optimal type of modification often requires weighing a combination of loan terms that reduce monthly principal and interest payments against the potential for longer term sustainability of the payments. The table below shows re-default rates at three-month increments following modification for each of the different amounts of change in payments resulting from modification.

Foreclosures and Other Home Forfeiture Actions

• The lifting of foreclosure moratoria during the quarter, continued economic weakness, and the migration of an increasing number of serious delinquencies into foreclosure resulted in a 10.8 percent increase, to 290,920, in newly initiated foreclosures. The number of newly initiated foreclosures dropped among subprime mortgages but increased for prime and Alt-A loans. Prime mortgages experienced the most significant increase, rising by 21.5 percent from the previous quarter, reflecting the increasing pressure on this largest group.⁷
• Completed foreclosures fell by 10,698 from the prior quarter, a decrease of nearly 12 percent, as shown below. This was the result of national, state, local, and servicer-imposed moratoria in effect for much of the first quarter of 2009 and the increasing number of new modifications being offered. New short sales increased and deed-in-lieu-of-foreclosure actions decreased during the quarter, both remaining a small percentage of total loss mitigation actions.

• Servicers continued to implement more home retention actions than newly initiated home forfeiture actions, as shown in the table below. Loan modifications and payment plans exceeded the number of completed foreclosures and other home forfeiture actions by almost three-and-a-half times during the first quarter.

next >