Seriously Delinquent Prime Loans Double at Banks/Thrifts

The serious delinquency rate on prime loans has doubled over the past year and hit 3.6% in the third quarter, up 20% from the previous quarter, according to the Office of the Comptroller of the Currency and Office of Thrift Supervision. Overall, 87% of the loans in the servicing portfolios of large banks and thrifts are performing and 6.2% are 60-days or more past due (seriously delinquent), according to the OCC/OTS quarterly Mortgage Metrics Report. The third quarter report also shows continued deterioration in the performance of payment-option adjustable rate mortgages. Only 67.7% of options ARMs are performing, 16% are seriously delinquent and 11.9% are in the process of foreclosure. In the second quarter, 15.2% were seriously delinquent and 10% were in the process of foreclosure. The national bank and thrift servicers completed more than 130,000 loan modifications in the third quarter. In total, more than 680,000 home loan modifications and payment plans (including those done on a trial basis) were implemented during the period. Despite the growth of loan modifications, more than half of all modifications are 60-days or more past due after six months. In cases where the monthly principal and interest payment is reduced by at least 20%, the redefault rate is only 26.7%. After 12 months, the redefault rate is 38.6%, compared to 66% where the modification leaves the borrower's payment unchanged. In the third quarter, more than 80% of the loan modifications resulted in some reduction in monthly payments.