Foreclosure RatesMortgage delinquencies continue to rise, and re-defaults of modified mortgages are high, and getting worse, according to a report released Friday by regulators who oversee banks and thrifts.

The report, which covers the fourth quarter of 2008, showed that fewer than 90 percent of mortgages were being paid on time, a three-percentage-point drop from a year earlier.

The Office of the Comptroller of the Currency and the Office of Thrift Supervision report covers mortgages serviced by nine large banks and four thrifts — two-thirds of all outstanding mortgages.


Subprime mortgages, which were issued to people with checkered payment histories, have the highest level of delinquency, but the delinquency rate among prime borrowers is growing fastest. From March 31, 2008 to Dec. 31, 2008, the percentage of prime borrowers who were at least 90 days late on their mortgages more than doubled, to 2.4 percent.

There are now more than 550,000 prime mortgages more than 90 days overdue, and for the first time, that number surpassed the subprime tally. The subprime loans are failing at much higher rates, however — more than 16 percent are seriously delinquent.

Servicers are trying to do workouts with borrowers who have missed payments or who know they cannot pay once an adjustable rate takes effect. But a significant minority of those modifications fail. For modifications done in the first quarter, 41 percent of borrowers defaulted again within eight months, and for those in the offered during the second quarter, 46 percent defaulted again.

Third-quarter modifications, which only had five months of history at the time of the report, had already shown 43 percent re-default rate.

In all those cases, borrowers had missed at least two months of payments in that time.

Regulators said it’s not clear whether the worsening economy is to blame, or the unrealistic original mortgages. But one factor is the fact that mortgage workouts don’t necessarily translate into a more affordable mortgage. Because many lenders add the late fees and missed payments to the cost of the loan, in 32 percent of cases, the borrowers had a higher payment after the modification.

When modifications lowered payments, re-defaults were much lower.

“This new data shows that, in the current stressful environment, modification strategies that result in unchanged or increased mortgage payments run the risk of unacceptably high re-default rates,” the Comptroller of the Currency John C. Dugan said in a statement released with the report.

Lee writes for the Washington Business Journal, an affiliated publication to the San Antonio Business Journal.