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Thursday, September 29, 2011

I Think I'll Bother

Of late I have gotten really apathetic and depressed about pointing out the nonsense in many news reports, but this one was kind of over the top:
One in five homeowners whose mortgages were modified under a program aimed at reducing foreclosures defaulted again within a year after their payments were cut, the U.S. Comptroller of the Currency reported today.
The report is OCC's Mortgage Metrics for Q2. A picture is worth a thousand words, so this chart from page 45 should be worth at least 500:

The important column is the "Current" Column. Very few of the mortgages exit via pay-off, although probably a lot are written down on short-sale or DIL - (most of rightmost column).

Now needless to say, as time rolls on more and more modified mortgages will default. For 2008, less than 29% of these mortgages are current or paid off. For mortgages modified in the first quarter of 2011, ONLY 77.7% are CURRENT. This is still an appallingly bad performance after at most five modified scheduled mortgage payments.

Beginning on page 5 you can see a breakdown of performance by 60 day delinquency rates at 3, 6, 9 and 12 months by year of modification, beginning with 2008 and ending with Q1 2011. The quality has improved overall, but still is pretty bad considering how much the payments have been dropped (see page 36 for 30 days plus after a year), but now delinquency rates on the overall mortgage portfolio have started rising again.

I really hate this report, because it seems to me that there are elements of dishonesty and, well, spin in the way the data is presented. I guess I'll write more on this tomorrow - I've shut up all these months, but I'm really irked now.

OK, I'm confused by your irk. Is it that they are calling delinquencies defaults?

Because when I look at that chart it seems pretty horrific. Seriously delinquent looks like it spikes pretty hard within 12-18 months.
I was looking at an REO in a nice area yesterday, priced @ 160K so the bank in this case is seeking cash buyers. The house is typical of tract housing built since the early 70's, expensive to maintain. While the price was low it needed two and half new bathrooms, the kitchen lacked appliances and the pressboard cabinets needed to be replaced along with the cheap counter tops. Both upstairs bathrooms had significant prior leaks as the rough patch up work on the ceiling and walls showed how sloppy the fix had been, no way to buy unless the walls and ceiling are opened up to determine the extent of the damage.
The very poor quality of Calif tract housing and its lack of durability will impact prices for many generations here. Its not in the data but those that have bothered to look under the covers understand the financial drain these homes will have on homeowners/investors as time marches on.
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