Thursday, October 1, 2009

Mortgage modifications delay the inevitable

The OCC is out with their mortgage metrics report. No major surprises there - the delinquency pain continues. Late or non-performing mortgages stand at 11.4% across all mortgages portfolios (prime, sub-prime, Alt-A, etc.). The report (included below) gives all the details. But the report is based on data that's a quarter old - it's difficult to gauge the current acceleration rates.

One item that the report spends a great deal of time discussing is the impact of mortgage modifications. The statistics show that modifications are fairly ineffective. The OCC computes re-default rates shortly after a modification. The chart below shows the percentage of modified mortgages that become 30+ days delinquent as a function of time after a modification. Over a fairly short period of time the majority of those who defaulted, default again.

It's an indication that mortgage modifications as a whole just act to delay the inevitable. Clearly there are cases where modification works and will keep some from defaulting going forward. But the odds don't look good. That delay only keeps prolonging the pain and uncertainty. We need the foreclosures to go through in order to clear up the mess on a more permanent basis.


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