OCC Sees 'Early Signs' of Dual-Tracking Slowdown, Official Says

WASHINGTON - The Office of the Comptroller of the Currency is starting to see signs that servicers are putting more foreclosures on hold while loss mitigation efforts are underway, agency officials said Wednesday.

The number of new foreclosures initiated in the fourth quarter fell 16% from the previous quarter. The inventory of foreclosures in process declined 4.1% from the third quarter and 3.1% from a year ago, to 1.2 million, according to the OCC’s quarterly mortgage metrics report released Wednesday.

Bruce Krueger, the agency’s lead mortgage expert, said servicers are delaying the start of new foreclosures, as well as suspending foreclosures already in process, when they are negotiating a loss mitigation action.

“I think what you’re seeing there are early signs that servicers are starting to clamp down on dual tracking processes,” when a borrower remains in the foreclosure process while a loss mitigation effort is underway, Krueger said.

He also noted that servicers reduced borrower principal for 25% of all portfolio loans they modified in the fourth quarter, compared with 18.4% in the third quarter. They reduced principal for 16.4% of all investor-owned loans, up from 15.3% in the previous quarter.

The numbers are even higher for modifications through the Home Affordable Modification Program, Krueger said. Servicers reduced principal for 42.5% of portfolio loans through Hamp modifications in the fourth quarter, and 22.5% of investor loans.

“I expect that we’ll continue to see that trend increase as the largest four servicers that report to [the OCC’s mortgage metrics report] start implementing their programs under the settlement that they’ve done with the Department of Justice and the state AGs,” Krueger said.

The $25 billion servicer settlement requires the five largest servicers to provide billions of dollars in borrower relief, including principal reductions. Four of the servicers – Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) – are regulated by the OCC. The fifth, Ally Financial (ALLY), is regulated by the Fed.

The overall quality of the portfolio remained stable from the previous quarter, Krueger said.

At the end of 2011, 27.6 million loans, or 88% of the portfolio of loans covered by the report, were current and performing. Servicers have modified 2.4 million loans since the start of 2008 through the end of the third quarter. Of those loans, 48.3% were current or had been paid off, 26% were delinquent, 10.6% were in some stage of foreclosure and 6.1% had completed the foreclosure process.

“We certainly are not yet seeing signs of a robust recovery in the overall quality of the mortgage servicing portfolio,” Krueger said.

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