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Putting struggling borrowers into mortgages with more manageable monthly payments via a loan modification is a key element of the industry's effort to cut the nation's foreclosure crisis short.
[IMAGE]A recent study by the ""Office of the Comptroller of the Currency"":http://www.occ.gov (OCC) and the ""Office of Thrift Supervision"":http://www.ots.treas.gov/ (OTS) took a look at loan performance post-modification.
The regulators found that more recent modifications have performed better than earlier modifications, reflecting an increasing emphasis on lower monthly payments and sustainability.
After six months, 18.3 percent of mortgages modified in 2010 were 60 or more days delinquent, compared with 32.0 percent from 2009 and 45.3 percent from 2008.
Modifications on mortgages held in servicers' own portfolios and those serviced for Fannie Mae and Freddie Mac performed better than modified loans serviced for government agencies, such as the Federal Housing Administration and the Department of Veterans Affairs.
According to ""the OCC-OTS report"":http://www.occ.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics-q1-2011/mortgage-metrics-q1-2011.pdf, these lower re-default rates for GSE and portfolio mortgages may reflect differences in modification programs and, for portfolio mortgages, additional flexibility to modify terms. The higher re-default rates for government agencies reflect the higher risk associated with those mortgages.
The regulators stress that modifications which reduce monthly principal and interest payments by 10 percent or more outperform mods that offer a payment reduction below this threshold.
Their study showed 61.6 percent of modifications made since January 1, 2008 that reduced payments by 10 percent or more are current and performing.
Only 37.1 percent of modifications made during that same period which reduced payments by less that 10 percent remain current.
The study also found that modifications through the government's Home Affordable Modification Program (HAMP) have performed better than other modifications, with HAMP re-default rates nearly half that of other mod programs.
These lower post-modification delinquency rates reflect HAMP's emphasis on the affordability of monthly payments relative to the borrower's income, verification of income, and completion of a successful trial payment period, according to the regulators.
Their report noted that modifications made under HAMP during the first three months of this year reduced payments by an average of $562, compared to an average payment reduction of $333 for all mods completed in the first quarter.
Looking at the big picture, servicers modified 1,923,603 mortgages from the beginning of 2008 to the end of 2010, according to the OCC-OTS report. _(The regulators' analysis does not include loans in securities pools serviced for private investors.)_
At the end of the first quarter, 52.5 percent of these modifications remained current or were paid off, while 8.2 percent were 30 to 59 days delinquent, and 18.5 percent were 60 or more days delinquent.
More than 10 percent were in the process of foreclosure, and 4.5 percent had completed the foreclosure process.
