Later mortgage modifications turning out better

By Associated Press
Posted Aug. 24, 2010 at 2:08 p.m.

Homeowners who had mortgages modified recently are faring better than those who did so earlier in the housing crisis, according to a report released Tuesday, possibly debunking predictions of a huge wave of defaults to come.

The State Foreclosure Prevention Working Group warned of other troubling signs, however, on the same day that a separate industry report showed the most severe July sales drop-off for previously occupied homes in 15 years.

The group of 12 state attorneys general and state banking regulators said Tuesday that foreclosures still easily outpace  loan modifications. Modifications usually lower monthly payments and reduce the odds of losing a home.

And nearly 63 percent of homeowners with seriously delinquent loans aren’t taking part in foreclosure prevention programs, the group found.

Banking officials warned that lenders must aggressively seek  homeowners  teetering on the edge, even if it means short-term pain for banks.

“There is still a tremendous amount of work to be done to prevent unnecessary foreclosures,” said Neil Milner, president and CEO of the Conference of State Bank Supervisors, which is part of the working group. “Servicers must continue to perform meaningful outreach to those homeowners who are seriously delinquent and to perform modifications with significant principal reduction.”

The working group compared delinquencies for mortgages modified last year with those revised in 2008, and then payments received six months after the terms were changed. Those modified more recently were nearly 50 percent less likely to be seriously delinquent than those revised at the same point in 2008.

The report said recent modifications that reduce principal balances on loans have a lower default rate than those that merely cut the interest component of monthly payments.

But most banks don’t take that route, according to the report.

Only one in five modifications reduced the loan amount, with the “vast majority” of modifications increasing the loan amount by adding service charges and late payments to the balance, the report said.

Messages seeking comment from the Mortgage Bankers Association were not immediately returned.


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