Strategic Default Monitor – How To Strategically Default

Wednesday, July 20, 2016

The Current Loan Modification Trend

For the past several months, loan modification activity have been evident to be in a decline according to data from sources such as the Hope Now alliance. Moreover, the vast majority of the modifications were made via proprietary programs, while a smaller portion were completed through the Home Affordable Mortgage Program. However, this drop does not necessarily always indicate bad news as depicted from the analysis described below.

According to a recent report from the Office of the Comptroller of the Currency (OCC), more mortgage modifications are now focusing on the sustainability of a loan in addition to focusing on affordability. The OCC’s Q1 Mortgage Metrics report show that 91% of the 34,481 modifications completed by the seven largest banks (Bank of America, Citibank, HSBC, JPMorgan Chase, PNC, U.S. Bank, and Wells Fargo) were of the “combination modification” variety. This means that there were multiple actions that affect both the affordability and sustainability of a mortgage loan (such as interest rate reduction and term extension).

On the other hand, approximately 80% (30,028) out of the total number of loan modifications completed during Q1 reduced the pre-modification monthly payment of the loan. Servicers additionally reported that about 6,058 modifications that were fulfilled during the third quarter of 2015 were either 60 days or more past due or in the process of foreclosure.

Overall, although the 58,921 new foreclosures initiated by servicers in Q1 was a 29% decline from a year earlier, the percentage of mortgages that were current and performing nevertheless rose 0.7% from the end of Q1 2015 to the end of Q1 2016 as evident in the report. The report covered approximately 21.1 million first-lien mortgage loans with $3.6 trillion in unpaid principal balances, and covered about 38% of all outstanding first-lien residential mortgage debt in the U.S.

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