Servicer Settlement Boosts New Loan Mods, OCC Finds

WASHINGTON — Regulators are starting to see the effects of a $25 billion national mortgage servicing settlement with an increase in new loan modification trial-period plans.

Servicers initiated 178,528 proprietary trial-period plans in the second quarter, a 74.2% increase from the previous quarter and 50.1% from a year earlier, the Office of the Comptroller of the Currency said Thursday. While some of the increase is attributable to a shift in the way servicers reported the activities this year, OCC officials said the uptick coincides with several large banks implementing the terms of the deal, which was finalized in February.

"There is some real increase, we believe, coming from the national mortgage settlement," Bruce Krueger, the OCC's lead mortgage expert, said on a call with reporters. "Those haven't resulted in full modifications yet, but you see them starting to show up in the newly initiated trial plans."

Krueger said regulators are also starting to see a large number of those trial plans being converted to full modifications in the early part of the third quarter.

"While I do not have hard numbers yet, I do think we will start seeing more pickup in principal reduction modifications in future quarters as the program gets more and more embedded," he said.

Meanwhile, modifications from the government's foreclosure prevention program continued to decline in the second quarter.

Modifications under the Home Affordable Modification Program declined 59.6% from a year earlier and 24.3% from the first quarter, to 37,375, according to the OCC's quarterly mortgage metrics report. And the number of Hamp trial-period plans declined 42.4% from a year ago, despite efforts by the Treasury Department to expand the program earlier this year.

Krueger said the new guidelines from Treasury did help some homeowners, but the overall number of people who qualify for Hamp continues to decline.

"While the program was expanded, you might consider it an incremental expansion," he said. "So while some new people are eligible for those programs, it doesn't offset the overall population who are eligible for the standard program declining."

Hamp modifications have continued to perform better than other modifications, according to the OCC's report. Of the 603,126 loans modified since the end of 2009, 64.8% remained current, compared with about half of other modifications, largely because of the program's emphasis on reducing monthly payments for borrowers, the report said.

On average, Hamp modifications reduced borrowers' monthly principal and interest payments by $576, compared with an average $381 reduction from other modifications.

Overall mortgage performance improved slightly in the second quarter, an indication of the slow recovery of the housing market, Krueger said. Seriously delinquent loans were at their lowest level in three years, and the number of mortgages in the process of foreclosure has declined.

The OCC attributed the year-over-year improvement to strengthening economic conditions, servicing transfers and the ongoing effects of loan modification programs and foreclosures.

The percentage of mortgages that were current or performing was 88.7% at the end of the quarter, compared with 88.1% a year earlier and 88.9% in the first quarter.

The percentage of mortgages that were 30 to 59 days past due increased 12.1% from the prior quarter — a seasonal decline in performance, the OCC said — but fell 7.5% from a year ago. And the percentage of seriously delinquent mortgages was 4.4%, down from 4.9% year earlier, the agency said.

The number of mortgages in the process of foreclosure decreased 2.6% from the previous quarter and 6.6% from a year earlier, to 1.2 million. But they still represented 4.1% of all mortgages, a percentage that has remained stable for more than a year.

The report covers 30.5 million first-lien mortgages worth $5.2 trillion in outstanding balances, about 60% of all first-lien mortgages in the United States.