Regulators: Mortgage Modifications on the RiseFinancial institutions are increasing their attempts to help homeowners avoid foreclosures, but less than half of loan modifications made at the end of the year actually reduced borrowers' payments by more than 10 percent, according to data released by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).
The report, based on an analysis of nearly 35 million loans, was published by the two banking regulators. It provides the most detailed and broad analysis to date of efforts to stem the foreclosure crisis.
About 37 percent of loan modifications made in the October-December quarter resulted in a drop in payments of more than 10 percent, compared with about one-fourth in the first nine months of the year. Regulators said they saw that growth as a positive sign.
The trend toward lowering payments to make home mortgages more affordable is moving in the right direction, says John Bowman, acting director of the OTS. Only one in four loan modifications in the fourth quarter actually resulted in increased monthly payments. This situation happens when lenders add fees or past-due interest to a loan and spread those payments out over the 30- or 40-year period. The report found that loans were far less likely to fall back into default if a borrower's monthly payment is reduced by a healthy amount.
Nine months after modification, about 26 percent of loans in which payments had dropped by 10 percent or more had fallen back into default. That compares with about half of loans in which the payment was unchanged or increased. The Obama Administration has targeted help for up to 9 million borrowers stay in their homes through refinanced mortgages or modified loans. It is spending $75 billion to provide lenders an incentive to alter more loans.