53% Double Defaults on Modified Loans

I don't think I was the only one floored by the mortgage default numbers coming out of the Office of the Comptroller of the Currency today. The Mortgage Metric report will be published next week by the OCC and the news is not good. A preview to the National Housing Forum took place this morning and was another stark alert to reality.

The OCC data reflects loan modifications undertaken by 14 of the largest national banks and thrifts which combined, represent 60% of the mortgage industry - 35 million loans with a loan value of over $6 trillion.

Nearly 36% of borrowers were more than 30 days past due on the loan payment three months after their loan was modified and nearly 53% were more than 30 days late after six months, according to the OCC.

"The results, I confess, were somewhat surprising, and not in a good way," Comptroller of the Currency John C. Dugan said in a speech in Washington, D.C. on Monday. Mr. Dugan said it wasn't clear whether the low success rate reflected the fact that the modifications weren't reducing monthly loan payments enough to be truly affordable, whether the mortgages were so badly underwritten that they weren't affordable, even with lower payments, or if both factors were at work. Wall Street Journal

"Put simply, it shows that over half of mortgage modifications seemed not to be working after six months," Dugan added. The OCC re-emphasized their commitment to find the answers posed by this new data.

Dugan warns that the forthcoming report will also show continued increasing delinquencies and foreclosures in process for all first-lien mortgages held by the largest national banks and federally-regulated thrifts. But the report will show new foreclosures decreased 2.6 percent balanced by about the same number of foreclosure sales.

"Credit quality continued to decline across the board, with delinquencies increasing for subprime, alt-A, and prime mortgages – and the greatest increase in percentage terms was in prime mortgages," said Dugan .

As a precursor to this morning's address, Federal Reserve Chairman, Ben Bernacke said in a speech last week that "Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy."

Click here to read the remarks by Comptroller Dugan in their entirety from his address this morning to the National Housing Forum.