Tuesday, December 9, 2008

Loan Modifications Aren’t Working, Dems Threaten More Aggressive Actions with Obama

From the Office of the Comptroller of the Currency Administrator of National Bank: Comptroller Dugan Highlights Re-default Rates on Modified Loans

WASHINGTON — Comptroller of the Currency John C. Dugan said today that new data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months.

After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today.

Mr. Dugan spoke during a panel discussion with OTS Director John Reich, Federal Reserve Board Vice Chairman Donald Kohn, FDIC Chairman Sheila Bair, and Federal Housing Finance Agency Director James Lockhart.

A key question, Mr. Dugan said, is why is the number of re-defaults so high? “Is it because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers? Is it because consumers replaced lower mortgage payments with increased credit card debt? Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments? Or is it a combination of these and other factors?”

That question “has important ramifications for the foreclosure crisis and how policymakers should address loan modifications, as they surely will in the coming weeks and months,” the Comptroller added.

His remarks also provided a preview of the second OCC and OTS Mortgage Metrics Report to be published later this month. The report will show continued increasing delinquencies and foreclosures in process for all first-lien mortgages held by the largest national banks and federally-regulated thrifts. However, the report will show new foreclosures decreasing by 2.6 percent from the second quarter.

The mortgage metrics report covers nearly 35 million loans worth more than $6.1 trillion, or about 60 percent of all first-lien mortgages in the United States. The quarterly reports are unique in that they are not merely surveys, but instead consist of validated, loan level data using standardized definitions for prime, Alt-A, and subprime mortgages, and standardized definitions for loan modifications.

“We believe the reports include the most accurate and reliable data on mortgage performance that is available today,” Mr. Dugan said. “And in addition to providing more clarity about mortgage performance generally, the data have proven to be exceptionally valuable for supervisory purposes.”

The Story Continues from the Associated Press Foreclosure relief unlikely until Obama in office

The data raise questions about whether government money may be better spent on creating jobs, rather than averting foreclosures, said John Reich, director of the federal Office of Thrift Supervision.

But the reports aren't detailed enough to show how well the programs are working or which borrowers have been most helped, said FDIC Chairman Sheila Bair.

The report "raises more questions than answers because it fails to define, in any meaningful way, the modifications that have redefaulted," she said in a statement e-mailed after the forum. "It's impossible to make any judgment about the redefault rates of sustainable modifications versus cosmetic modifications that by their nature are more likely to redefault."

New Jersey Gov. Jon Corzine called for a three- to six-month halt to foreclosures while the government works out a more aggressive plan. "We need a bottom-up approach ... by modifying people's mortgages and helping them stay in their homes," he said.