By: Favian ClaiA new report released today suggests that more than half of homeowners, who receive loans modified in the first half of last year, missed at least two payments a year later according to Government officials.
This comes at a time where lenders are trying to avoid more home foreclosures. Their report states that a third of borrowers whose monthly payments were reduced by 20% or more, ended up falling behind again within a year. That compared to the more than 60% whose loan payments weren't changed or increased.
The report shows that there is a significant challenge facing the Obama administration's plan to solve the foreclosure crisis. The plan is currently backed by $50 billion in money set aside by the Financial Industry Bailout Fund.
While the administration's effort got off to a slow start, it has picked up speed in recent months with about 360,000 borrowers or 12% of those eligible signed up for the three-month trial modifications. The goal with the trial is that if homeowners make timely payments, the modification is to be extended for five years.
Traditionally, lenders have offered payment plans that caught borrowers up on missed payments, but those plans often resulted in a higher monthly payment, defeating the purpose.
Under the plan by the Obama administration, a home loan borrower can have their interest rate reduced to as low as 2% for up to five years.
In others news, the Dow Jones reports that lenders began to step up efforts to help borrowers who were strapped or at-risk during the second quarter of 2009. However, a Federal Banking Regulator reported on Wednesday that despite these efforts, their actions weren't enough to stem the rising mortgage delinquencies and foreclosures.
Actions to rescue at-risk borrowers from foreclosure has increased to nearly 75% since the first quarter of 2008, as lenders began to participate more in the government's loan modification program. According to the Office of the Comptroller of the currency, an estimated 440,000 modifications were processed last quarter, which continues to climb quicker than new foreclosures. However the risks of foreclosures don't just affect those in subprime mortgages. Defaults are taking its toll across prime, Alt-A all the way to subprime mortgages.
The OCC reports quarterly on about 34 million loans, totaling about $6 trillion in value or about 64% of all first mortgages that are outstanding in the United states,
The OCC report also cited that seriously delinquent loans rose to 5.4% of all loans, and the number of foreclosures in process increased to 993,000 or about 2.9% of the loans covered by the OCC report.
The report also revealed that so-called payment option adjustable-rate mortgages (ARM), which allow borrowers to choose from a range of minimum payments, were the largest culprit in the negative numbers. Nearly 15% of ARM loans were seriously delinquent and 10% were in the process of foreclosure.
Loan modifications that reduced monthly principal and interest jumped to almost 80% of all new modifications. Last quarter, this number was a little over 50%, signaling that the trend from loan modifications that do not reduce monthly payments for borrowers is quickly dropping in favor of loan modifications that do reduce payments.
