View Full Version : Mortgage re-defaults rise

12-22-2008, 03:39 PM

Mortgage re-defaults rise with no sign of slowing
Mon Dec 22, 2008 1:08pm EST

By Kim Dixon

WASHINGTON (Reuters) - The rate of home mortgage borrowers defaulting after their loans are modified is rising and may worsen as the economy deteriorates, U.S. banking regulators said on Monday.

After six months, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent, according to a joint report by the Comptroller of the Currency and the Office of Thrift Supervision. Both are banking regulation agencies within the U.S. Treasury Department. After three months, 19 percent were 60 or more days delinquent or in the process of foreclosure.

"One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months," John Dugan, head of the Office of the Comptroller of the Currency, said.

"I don't think we've seen the worst yet," Dugan said later in an interview with CNBC television, citing the worsening economy.

Possible explanations for the re-defaults include the faltering economy, and that the loan terms are not modified enough to help homeowners, Dugan said.

Some U.S. lawmakers and the head of the Federal Deposit Insurance Corp have called for a more aggressive effort by lenders to modify mortgage terms to help keep people in their homes.

According to the government's data, the number of delinquencies rose across all loan categories, although subprime loans had the highest default rates. At the same time, nine out of 10 mortgages remain current.


Critics said the data is misleading because it includes repayment plans that fail to significantly modify a home loan. For example, many freeze the interest rate for just a year, according to the Center for Responsible Lending, a nonprofit group that aims to help homeowners.

"You really have to work it out to a sustainable loan, not just one that is designed to default because after a year it's going to rise again," spokeswoman Kathleen Day said.

A spokesman for IndyMac federal bank, which was taken over by the Federal Deposit Insurance Corp in August, said up until a few months ago, lenders were only tinkering with loan terms and not doing true modifications.

"Modifications in the past were never about finding the borrower an affordable payment," Evan Wagner said. "So I think it shouldn't be surprising that you are seeing a lot of these folks redefaulting."

The data, some of which was released in preliminary form earlier this month, were based on information collected from some of the biggest U.S. institutions, such as Bank of America, Citibank and JPMorgan Chase.