Friday, February 13, 2009

OCC, OTS to Study ‘Sustainability’ of Modifications

By DIANA GOLOBAY in the Housing Wire:

The March edition of the Mortgage Metrics Report, published jointly by the Office of the Comptroller of Currency and the Office of Thrift Supervision, will include new information that looks into the “affordability and sustainability” of loan modifications, the agencies announced Friday. “By bringing the same sort of standardized definitions and rigorous analysis to loan modification performance data that we have provided in our previous reports on mortgage metrics, lenders and policymakers can use this information to make loan modification programs more effective,” Comptroller of the Currency John Dugan said.

The added data will review whether loan modifications increased monthly principal and interest payments, had no effect on monthly payments, reduced payments by 10 percent or less, or reduced payments by more than 10 percent. The agencies will also publish expanded data regard recidivism — or re-default — of loans modified in the first half of 2008. New data will show the percentage of modifications in each of the four new categories that were 60 or more days past-due six months after modification.

“This will help gauge the effectiveness of the four categories of changes in monthly payments in making mortgages more sustainable and in keeping borrowers in their homes,” agency officials said in a joint press statement. The agencies also said the future reports covering all of 2008 and subsequent periods will include the expanded data and show continued trends of these modifications at the various stages of the modification’s life.

“We have promised to continually improve this data collection-and-reporting program to ensure that the results are meaningful and useful in the ongoing effort to address the nation’s foreclosure crisis,” said OTS director John Reich. “Today’s announcement marks a meaningful milestone in that effort.” (Reich had announced his Feb. 27 date of departure from the OTS one day earlier, on Thursday.)

Data published so far by the agencies shows
a telling trend; as early as December, they reported that more than half of the loans modified in the first quarter of 2008 had re-defaulted after six months. At the time of publication, that data had not been broken out by the four modification categories. Going forward, the agencies’ data should show revealing trends of various types of loan modifications and their possible ramifications for borrowers.

According to the results of a separate study,
published in mid-December, 35 percent of voluntary mortgage modifications studied reduced monthly payments; 20 percent of modifications had no effect either way on the payment amount and nearly half of all modifications — 45 percent — resulted in an increased monthly payment, according to Valparaiso law professor Alan White. Less than 50 percent of loans modified in January 2008 were current on payments as of Nov. 25, according to his data.

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