Monthly reports showing more stable loan modification performance patterns and new delinquency rates indicate the mortgage servicing market is becoming more predictable.
Stable trends in redefaults on loan modifications are "particularly" encouraging because they indicate long-term sustainability, according to Hope Now data from May 2010 to April 2011.
Faith Schwartz, Hope Now's executive director, said findings showing that permanent proprietary loan modifications remained less than 90 days past due for 80% of the modifications during this period indicate that servicers have become more efficient.
By late April redefaults of proprietary loan modifications over a 12-month period averaged at 80% of the borrowers performing, meaning most loans have performed satisfactorily for at least six months before default.
Redefaults of proprietary loan modifications 90 days or more delinquent represented 19% of the active modification inventory, which remains at 240,000. So if roughly 20% of homeowners with proprietary loan modifications redefaulted after 90 days on a year-over-year basis, compared with March, redefaults averaged at 81% performing and 19% redefaulting after 90 days.
The number of modified loans 60 days or more delinquent in April rose 2%, to 2.69 million, from the 2.63 million in March. As expected due to the moratoriums' effect, April foreclosure starts fell 25% from March, to 163,000.
The modification market is shrinking. A positive outcome in April, according to Hope Now, is the performance of proprietary loan modifications. It "remained steady" across the board including the Federal Housing Administration, Fannie Mae, Freddie Mac and other private, non-Home Affordable Mortgage Program modifications, which reported consistent performance in principal and interest payment reductions, fixed-rate offerings and redefault.
The number of permanent proprietary modifications fell 26% from 77,000 in March, to 57,000 in April. Up to 47,000 of these modifications, or 82%, were loans that benefited from reduced principal and interest payments — of which 30,000, or 53% of all proprietary modifications, received reductions of 10% or more. A significant 78%, or 45,000 of all proprietary modifications, were loans with an initial fixed-rate period of five years or more.
The use of various foreclosure-prevention tools such as lower rates and principal forbearance or writedowns by the industry, the nonprofit community and the government entities has helped "create sustainable modifications."
Such tools include homeowner education and borrower outreach efforts through face-to-face events and advanced home-retention technology. Hope Now said it will focus on programs such as the Treasury Department's Hardest-Hit Fund effort and the Emergency Homeowner Loan Program for unemployed homeowners.
It is unclear if demand for loan modifications will continue to diminish. New rises in delinquency rates suggest new demand may arise.
In April a 2.4% rise in new delinquencies to 1.28% followed expected historical trends, according to LPS, and is the largest jump in years, despite improvements compared with January 2011 and a 25% decrease compared with its peak in January 2010.
The total loan delinquency rate was 7.97%, up 2.4% from March, yet April marked "a continuing trend" of loan performance improvements. New problem loans hit a three-year low, showing the decreasing effect of the ongoing process reviews and moratoriums on foreclosure starts and sales month over month.