Mortgages at the nation's largest financial institutions continued to improve for the fifth consecutive quarter at the end of last year, an indication that 2013 was a steadier year for mortgage portfolios than the quakes seen following the housing crisis.
Delinquencies and foreclosures declined in the fourth quarter for the largest financial institutions, which hold nearly half of the outstanding first-lien mortgages in the country, according to the quarterly Mortgage Metrics report released Thursday by the Office of the Comptroller of the Currency.
Overall, 91.8% of the 24.9 million mortgages covered by the report were current in the fourth quarter, slightly better than the 91.4% in the previous quarter and 89.4% a year earlier.
Though the OCC does not give forward-guidance in these reports, it largely attributed recent mortgage trends to an improved economy and more borrowers being able to afford their mortgage either because of modifications, refinancings or better employment.
“Generally, I view this as a very positive report...I think people are feeling more comfortable about their ability to pay. I think we're seeing that in the improved asset quality overall for the loans that are included in the report," said Kathie Gouldie, the OCC's lead retail credit expert, in a conference call with reporters. “And it also points out, importantly, that institutions are still working with troubled borrowers. They're looking at all options to make affordable payments for those that can continue to perform and they like to keep them in their home so it's still about home preservation wherever possible."
Both delinquent mortgages and foreclosures continued to decline in the fourth quarter. Mortgages in the early stage of delinquency (30-59 days past due) were 2.6% of the loans covered by the report, the lowest level since the OCC began tracking such data in January 2008. The percentage of mortgages that were seriously delinquent decreased 20.7% from a year earlier and one basis point down from the previous quarter to 3.5% of the portfolio in the fourth quarter.
Foreclosures initiated in the fourth quarter were down 20.6% from a year earlier and nearly 5% from the previous quarter to 124,468 new foreclosures in the fourth quarter. The OCC report attributed the foreclosure declines to an improved economy, loans that were transferred outside of the federal banking system, and “aggressive foreclosure prevention assistance."
“Generally, we are seeing some markets come back. Equity is returning to the markets," Gouldie said. “I think market values may not be where they were at the peak of the market but certainly there's been some upward movement."
The refinance boom and home retention programs have also worked their way through most of the cycle for borrowers who needed it, which contributed to mortgages performing better, Gouldie said.
The OCC report said the 242,828 home retention actions reported in the fourth quarter was nearly three times the number of completed foreclosures, short sales, and deed-in-lieu-of-foreclosure actions during the same period. However, the number of home retention actions have decreased by 22.4% from the previous quarter and 34% from a year earlier.
Gouldie said the decline in such programs was largely because overall, there are less mortgages being reported in the portfolios; almost 92% of those mortgages are performing; and there are fewer troubled loans that would need affordability programs.
“A lot of those actions have already been taken so there is a smaller base of these loans reported within this report to actually consider for action like this," Gouldie said. “In terms of taking actions for borrowers, the trends will continue. Everyone who needs to be evaluated for a modification will be. And I see that continuing."
The fourth quarter report looked at 24.9 million loans totaling $4.2 trillion in unpaid principal and representing 49% of all first-lien residential mortgages outstanding in the country. That's almost five million loans less than the prior year, when the largest banks reported having 29.8 million loans, representing 58% of all outstanding mortgages.