Good News: Mortgage Default Rate Plunged, HAMP Grade Surged

Published by nora | Filed under Buyer / Seller Tips, Communities, Market Trends, Mortgage / Finance, Real Estate, Shout Outs

In the midst of discouraging news about housing starts and home builder confidence, there are at least two good news stories about the U.S. housing sector this week.

First, the default rate for residential mortgages fell, and second, the number of permanent loan modifications under the Home Affordable Modification Program increased.

Based on the consumer credit default index of Standard & Poor’s and Experian, the default rate for first mortgages plunged to 3.3 percent in June, down by more than 5 percent from the previous month’s rate and down by a whopping 41.4 percent from June 2009. The default rate for second mortgages also fell to 2.4 percent, down slightly from the preceding month, but down sharply by 44.5 percent from June last year.

Default rates for credit cards and auto loans also decreased in June, with bank card defaults slowing by 0.8 percent over the month and by 5.8 percent over the year to 8.8 percent, and with auto loan defaults declining to 1.7 percent, down by 3.6 percent from May and by 22.3 percent from June last year.

All in all, the composite default rate for home loans, credit card debts and auto loans dropped to 3.4 percent, down over the month by 4.5 percent and down over the year by 37 percent.

Among the more significant improvements in default rates occurred in the New York metro area, where defaults plunged over the month by a whopping 12 percent to 3.5 percent; in Miami, where defaults fell by 8.1 percent to 8.5 percent; and in Chicago, where defaults dropped by 7 percent to 3.6 percent.

Meanwhile, the number of permanent mortgage modifications under HAMP spiked by 15 percent in June, based on a report released this week by the Treasury Department. A total of 51,205 trial modifications were put into permanent modification status in June, pushing the overall total of permanent modifications from March 2009 to June this year to 389,198.

Borrowers approved for permanent modification received discounts at an average of 36 percent on their monthly loan payments, equivalent to a reduction of around $500 each month, over a period of five years. They also got guarantees of fixed rates for the remaining years of the loan.

Since the start of HAMP through June, a total of 1.5 million troubled borrowers were offered trial modifications, and 1.2 million of them started trial modifications. Currently, there are 364,077 in active trial modification. A total of 38,728 new trial modifications were started in June, a jump from 30,099 in the previous month.

For the third straight month, HomeEq, recently acquired by Ocwen Financial Corp. from Barclays Capital, again topped the chart in rate of converting trial modifications into permanent status. Following HomeEq were Carrington and Wachovia.

The big four banks — JPMorgan Chase, CitiMortgage, Wells Fargo and Bank of America — improved their HAMP performance, but they need to do more as they lagged the smaller banks.

Ref: Tampa Mortgage, Tampa Bay Real Estate