Mortgage Modifications Down More Than Half
Thursday, May 3, 2012 — Mortgage servicers modified roughly 14,000 Freddie Mac-guaranteed home loans in the first quarter, less than half the 35,000 workouts one year ago as a new program begins.
Modifications dropped every quarter since the peak in the middle of 2010 at 50,000, according to the GSE earnings release Thursday.
Some of the decline in modifications is due to fewer loans entering serious delinquency and fewer borrowers eligible for HAMP. Freddie reported $72.8 billion serious delinquent loans in the first quarter, down from $82.1 billion in the same quarter last year.
But much of the decline is due to the launch of the Standard Modification, which became mandatory for servicers on Jan. 1 and has yet to age long enough to show results. The program, announced in September, allows servicers to reduce monthly principal and interest payments by 10% for borrowers deemed ineligible for HAMP.
“The implementation of the non-HAMP standard modification also negatively impacted the number of completed modifications in the first quarter of 2012, as servicers have had to transition borrowers to the new modification initiative and borrowers now need to complete a trial period before receiving the final modification,” Freddie said in its first quarter financial filing.
The Federal Housing Finance Agency will determine whether Freddie and its sister company Fannie Mae can participate in principal reduction programs. FHFA Acting Director Edward DeMarco has shown analysis that supports forbearance programs instead, but even these kinds of actions have been on the decline over the past year (click the graph below to expand).
Still, those modifications being done are performing better afterward. Of the loans modified in the first quarter of 2010, roughly 68% were still current and performing two years later. That’s up from 56% of 2009 workouts still performing after the same amount of time, Freddie said in its earnings release.
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