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Mortgage Redefaults Decline After Larger Payment Reductions

Dec. 21 (Bloomberg) -- Homeowners whose mortgage payments were changed under a program aimed at reducing foreclosures redefaulted at a slower rate after lenders gave more generous modifications, the U.S. Comptroller of the Currency said today.

About 18 percent of modified loans were at least 90 days delinquent within a year in the third quarter, compared with 20 percent in the previous three months, according to the Comptroller’s “Mortgage Metrics Report.” Delinquencies for loans 30 to 59 days late decreased 3.3 percentage points from the previous quarter, to about 34 percent.

Modifications implemented during the first quarter of 2011 defaulted at a higher rate than modifications from the previous two quarters because the payments weren’t lowered as much, according to the report. That’s because a bigger share of the recent modifications were under banks’ proprietary programs rather than the government plan, according to Bruce Krueger, lead mortgage expert for the Comptroller, a division of the U.S. Treasury Department.

“More people qualify but they don’t get as good of a modification,” Krueger said in a conference call today. “It’s not as successful.”

The most recent redefault rate contrasts with 2008, when more than half of loans defaulted again within a year, according to previous “Mortgage Metrics” reports.

Payment Reductions

The average modification implemented in the third quarter reduced payments by about 24 percent, or $382 a month. Loans reworked under the U.S. government’s Home Affordable Modification Program lowered payments by 35 percent on average, or $567.

Almost 1.95 million homeowners have been offered trial loan modifications since Jan. 1, 2009, and 883,000 have received permanent modifications as of Oct. 31, under the HAMP program, the Treasury Department reported Dec. 7. About 145,000 of the permanent modifications were canceled because of missed payments, a 16 percent redefault rate.

President Barack Obama’s administration said in 2009 that its loan-modification program would help as many as 4 million homeowners. About 2.58 million homeowners started modifications under proprietary programs offered by banks and loan servicers as of September, according to the Treasury Department.

Foreclosures, Short Sales

Total loan modifications and alternative payment plans for delinquent borrowers fell 2.4 percent during the third quarter from a year earlier to 458,899, according to the Comptroller’s report. Loan servicers completed 172,785 foreclosures and foreclosure alternatives, such as short sales, during the period.

The Comptroller’s report covers about 62 percent of all first-lien mortgages in the United States, worth $5.6 trillion in outstanding balances.

Mortgage delinquencies declined in the third quarter to their lowest rate since the end of 2008 as fewer borrowers missed payments while foreclosures were little changed, the Mortgage Bankers Association reported Nov. 17.

Mortgage-default notices, auctions and foreclosure sales declined 14 percent in November from a year earlier as lenders reduced evictions for the holiday season and slowed foreclosure processing amid investigations by state attorneys general over documentation used to seize homes, RealtyTrac Inc. said Dec. 15.

To contact the reporter on this story: John Gittelsohn in Los Angeles at

To contact the editor responsible for this story: Daniel Taub at

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