Bank Foreclosed Home Listings Grow as Loan Defaults Rise

by Peter Vernon on Foreclosure Rates

Bank foreclosed home listings are expected to grow further as the number of prime borrowers defaulting on their home loans continued to increase sharply, based on data from the U.S. Office of the Comptroller and Office of Thrift Supervision.

According to the two agencies, the percentage of performing or current residential mortgage loans in the country has decreased for the sixth straight quarter in the July-September quarter as foreclosure postings exceeded one million on September 30. The agencies analyzed about 65 percent of all home loans in the U.S., equivalent to 34 million home loans with a principal balance total of $6 trillion.

The agencies also reported that the number of serious defaults – home loans which are in default by 60 days or more – rose across all mortgage categories, pushing up the percentage of troubled loans to 6.2 percent in the third quarter.

Of all adjustable-rate mortgage loans, 67.7 percent were current as of September 30 while 27.9 percent were in serious default or already in foreclosure.

According to government analysts, the most distressing finding in their mortgage study was that nearly 4 percent of prime mortgage loans were in default by more than 2 months, an increase of more than 200 percent from the percentage in the July to September quarter last year.

The agencies said that banks increased their efforts in implementing the federal bank foreclosed home prevention program, putting over 680,000 mortgages into trial modifications and trial repayment plans in the third quarter, but these modifications were still inadequate to prevent the continued rise in loan defaults even among prime borrowers.

The study showed that more than 50 percent of all modified home loans as of the third quarter were already in default by more than 2 months, with many of these already in the foreclosure process. Not even one percent of all borrowers with modified loans under the Home Affordable Modification Program sustained their modified and reduced monthly payments to be able to make their loan modifications permanent.

In addition, banks also failed to carry out their loan modification efforts at a pace that could keep up with the default rate. They were able to modify loans for only one out of six homeowners who were in serious default or in foreclosure in the quarter ended September. During the July-September quarter, over 369,000 households received default or foreclosure notices despite intensified efforts by the federal government in pressuring lenders to step up their bank foreclosed home prevention activities.