4+ Years to 'Clear' Pipeline of Distressed Homes | Mortgage Loan Modification Default Rates

Here is the headline:

…Average loan in foreclosure had been delinquent for 22 months. Fitch projects that at the current rate, it will take four years to clear the current pipeline of distressed loans and foreclosed homes.

NOTE: Thats 4 years to clear the CURRENT homes in default…not the projected additional 8,000,000 homes that will be upside down in values drop another 5%..which is happening now in most major real estate markets.

* Among loans that aren’t backed by any government entity, the redefault rate within a year is likely to be 60% to 70% for subprime loans, and 50% to 60% on prime loans. That’s down slightly from redefault projections last June of 65% to 75% for subprime loans, and 55% to 65% on prime loans.

*  11% of subprime loans that receive modifications had received additional modifications.

* The Obama administration’s signature foreclosure-prevention effort, called Home Affordable Modification Program, or HAMP, has failed to meet the initial projections of helping millions of borrowers—it resulted in 36,500 completed modifications in December, pushing the tally to just over 500,000. But the report says that the program has helped steer the industry towards producing more sustainable modifications.

“HAMP did assist in standardizing the reduction of payments and focused more attention on the use of modifications,” says Diane Pendley, a Fitch managing director.

* Moody’s calculated six-month re-default rates on approximately 78,000 loans that were modified between the beginning of 2009 and mid-2010 by eight major servicers. The breakdown of each company’s modification re-default rate:

• Bank of America – 33%
• Wells Fargo – 29%
• American Home Mortgage – 26%
• Ocwen – 24%
• GMAC Mortgage – 23%
• JPMorgan Chase – 22%
• CitiMortgage – 20%
• Litton Loan Servicing – 20%

* Mortgage servicers have stepped up efforts to avoid foreclosures through short sales or short payoffs. More than half of all prime loans, and one third of subprime loans and Alt-A loans, a category between subprime and prime, have been liquidated without the bank taking back the home through foreclosure and re-selling it.

* A separate report published last week by Moody’s Investors Service found that modified loans were three times as likely to default as loans that hadn’t been modified. The analysis also found that the size of the borrower’s monthly payment reduction had a much greater effect on the likelihood of redefault than the borrower’s equity position.

* Redefault rates for borrowers with equity stood at less than 45%, compared to redefault rates of around 50% for borrowers that are underwater, or owe more than their homes are worth. But for subprime borrowers, every 20% reduction in monthly payments had reduced by 10% the chance that the borrower would default within 12 months.