Home/HARP, Mortgages/2Q Loan Modifications Drop but Loan Performance Improves

September 7, 2011 (Jeff Alan)

Loan modifications made by Fannie Mae and Freddie Mac declined for the fourth consecutive quarter as foreclosure prevention actions under the governments HARP program exceeded those under HAMP according to the Federal Housing Finance Agency’s (FHFA) Second Quarter Foreclosure Preventions and Refinance Report.

Although the Home Affordable Refinance Program (HARP) initially got off to a slow start, the cumulative total of refinancings through HARP by the end of the second quarter in June increased 11 percent to approximately 838,400 loans refinanced.

Whereas, according the government’s August Housing Scorecard, the Home Affordable Modification Program (HAMP) has had a cumulative total of 763,071 active trial or completed loan modifications since March 2009.

HAMP allows a borrower’s payment to be modified through an interest rate reduction, a term extension, or a principal forbearance.

HARP is designed to assist homeowners in refinancing their mortgages, even if they owe more than the home’s current value.

Since entering conservatorship in the fourth quarter of 2008, Freddie Mac and Fannie Mae have now completed nearly 1.8 million foreclosure prevention actions.

The total amount of completed foreclosure actions in the second quarter of 2011 was 167,629, which was a decline from 171,531 posted in the previous quarter, primarily due to a decrease in loan modifications and forbearance plans.

Short sales helped make up for the some of the shortcomings in loan modifications, increasing from 25,705 in the first quarter to 29,483 in the second quarter.

The amount of completed loan modifications dropped to 81,214 in the second quarter of 2011, down from 86,201 in the previous quarter.

Loan modifications made in 2010 and after continued to perform better than the loans that had been modified in earlier periods as a result of deeper payment reductions to a larger proportion of the borrowers and the requirement that borrowers must successfully complete a trial period before being granted a permanent loan modification.

In the second quarter, 49 percent of all loan modifications between Freddie Mac and Fannie Mae had a payment reduction greater than 30 percent, 18 percent had a payment reduction between 21 and 30 percent, and 26 percent of the modifications had a payment reduction of less than 20 percent.

The rate of re-delinquency has dropped substantially since the inception of the government’s loan modification efforts. The percentage of loans previously modified that have become re-delinquent (60 days or more past due) after three months has dropped from a high of 28 percent in the fourth quarter of 2008 to seven percent in the first quarter of 2011.

The number of loans that have become re-delinquent within six months of being modified dropped from a high of 37 percent in the third quarter of 2008 to 12 percent in the 4th quarter of 2010 and modified loans that became re-delinquent within 90 days has dropped from a high of 42 percent in the third and fourth quarter of 2008 to 15 percent in the third quarter of 2010 (the latest quarters recorded.)

Freddie Mac and Fannie Mae continue to maintain delinquency rates far below industry standards with their combined delinquency rate dropping from 4.02 percent in the first quarter to 3.85 percent in the second quarter compared to an industry average of 7.9 percent.

Tags: Freddie Mac, Fannie Mae, FHFA, foreclosure preventions, refinance HAMP, HARP, loan modifications, repayment plans, interest rate reduction, term extension