April 5, 2011 (Jeff Alan)
Credit quality of first lien mortgages improved in the fourth quarter of 2010, as the percentage of seriously delinquent mortgages declined for the fourth consecutive quarter, according to the quarterly report released by the Office of Thrift Supervision (OTS). It was the lowest level seen since the second quarter of 2009.

The report covers about 63 percent of all first-lien mortgages in the country, worth $5.7 trillion in outstanding balances.

The OTS report showed that 87.6 percent of the 32.9 million loans in the portfolio were current and performing at the end of the quarter. Although mortgage delinquencies remain at elevated levels, the overall quality of the mortgages in the portfolio improved from the previous quarter.

The OTS also predicts that new and completed foreclosures are expected to increase in upcoming quarters as lenders complete reviews of their foreclosure processes brought on by the “robo-signing” controversy. This has already led to an increase in foreclosure inventories as new foreclosures outpaced completed foreclosures. The report says foreclosure inventory increased 7 percent to 1,290,253 in the fourth quarter representing 3.9 percent of all serviced loans.

Completed foreclosures decreased by nearly 50 percent to 95,067, while newly initiated foreclosures increased by almost 8 percent to 352,318 compared to the previous quarter.

Loan modifications also increased substantially in the fourth quarter. Mortgage servicers initiated more than three times as many home retention actions as completed home forfeiture actions. During the past five quarters, mortgage servicers initiated nearly 2.7 million home retention actions, 473,415 in the fourth quarter alone, compared to 146,132 home forfeiture actions in the same quarter.

Modifications made during the quarter reduced payments by an average of $414 per month with HAMP modifications reducing payments by an average of $587 and private modifications reducing monthly payments by an average of $351.

The report notes that 57 percent of the modifications made since January 2008 in which the mortgage payment was reduced by 10 percent or more were current and performing at the end of the quarter of 2010, which means 47 percent were not.

However, by contrast, only 34 percent of the mortgages in that same time period in which the payment was reduced by less than 10 percent were current and performing, which means 66 percent are not.

Tags: OTC, credit quality, first lien mortgage, mortgage delinquencies, foreclosures, foreclosure inventories, loan modifications, mortgage servicers, HAMP

Office of Thrift Supervision