Loan Modifications Slow But Loan Performance is Improving

 June 7, 2011 (Jeff Alan)

Loan modifications made by Fannie Mae and Freddie Mac declined for the third consecutive quarter as more homeowners who receive a loan modification are seeing a deeper payment reduction which is leading to improved loan performance according to the Federal Housing Finance Agency’s (FHFA) First Quarter Foreclosure Preventions and Refinance Report.

Since entering conservatorship in the fourth quarter of 2008, Freddie Mac and Fannie Mae have now completed more than 1.6 million foreclosure prevention actions.

FHFA reports that the total amount of completed foreclosure actions in the first quarter of 2011 was 171,531, which was a decline from 208,416 recorded in the previous quarter, which FHFA cited was primarily due to a decrease in loan modifications and repayment plans.

The amount of completed loan modifications dropped to 86,201 in the first quarter of 2011, which was down from 119,779 in the previous quarter.

Loan modifications made in 2010 continued to perform better than the loans that had been modified in earlier periods with FHFA citing two reasons; Loan modifications made in 2010 had deeper payment reductions for a larger proportion of the borrowers and the majority of the loan modifications in 2010 required the borrowers to successfully complete a trial period before being granted a permanent loan modification.

The cumulative total of Home Affordable Modification Program (HAMP) permanent loan modifications has now reached nearly 320,500 at the end of the first quarter. This is an increase of 13 percent from the fourth quarter of 2010.

More than 36,300 HAMP trials transitioned to permanent modifications with nearly 64,000 borrowers in a HAMP trial period at the end of the first quarter.

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

The government’s Home Affordable Refinance Program (HARP) continued to show improvement as 130,204 borrowers refinanced their loans in the first quarter through HARP, bringing the cumulative total of refinancings to approximately 752,000 by the end of the quarter, an increase of 21 percent from the fourth quarter of 2010.

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

Freddie Mac and Fannie Mae continue to maintain delinquency rates below industry standards with FHFA reporting that loan performance continues to improve in early stage and serious delinquency rates with declines in both areas reported in the first quarter of 2011.

You can read the entire report (24 pages) and get the latest statistics on FHFA’s website.

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