Why Do Mortgage Companies Do Better Modifying the Loans inwards Their Own Portfolios?
There are 2 offices inwards Washington that operate together to release a comprehensive written report on mortgages inwards the United States. These are the Office of the Comptroller of the Currency in addition to the Office of Thrift Supervision.Their written report is the Mortgage Metrics Report. In this written report they rail closely the issue of loans where people are facing foreclosure in addition to who are offered loan modifications in addition to how successful these modifications are.
They wait at the mortgages of nine national mortgage companies in addition to 3 big thrifts. These twelve are responsible for 64% of the mortgages inwards the United States.
Their written report is a quarterly report. Because the book of loans is then neat their written report commonly is finalized in addition to released 3 months afterwards the terminate of a quarter. Their most recent written report was released inwards September of 2009 in addition to covered the moment quarter of 2009 which ended June 30, 2009.
There are numerous charts inwards this report. One interesting nautical chart inwards the written report for the moment quarter of 2009 focuses on the pct of people who default over again on their loans afterwards a loan alteration was made. These are people who had their loans modified in addition to were facing foreclosure over again because they did non survive along to brand their modified payments.
The nautical chart monitors five investors - Fannie Mae, Freddie Mac, Government Loans, Private loans in addition to Portfolio loans. The nine national mortgage companies in addition to 3 big thrifts service loans for Fannie Mae, Freddie Mac, the regime (FHA in addition to VA) in addition to Private investors. Portfolio loans are those that the mortgage companies in addition to thrifts take lay upward the coin for from their ain funds. They maintain these inwards their ain portfolio rather than selling them to 1 of the other 4 investors.
Here are roughly interesting items from the chart:
• Anywhere from 27.7% to 34.4% of people whose loans were modified for the other investors had failed to survive along to brand their mortgage payments 3 months afterwards the loans were modified. Only 14.0% of the people whose loans were inwards the portfolios of the mortgage companies in addition to thrifts had failed to survive along to brand the payments afterwards the loans were modified.
• 40.2% to 49.8% of the people whose loans had been sold to the other investors in addition to whose loans were modified had failed to survive along to brand their payments on fourth dimension afterwards six months. Only 28.7% of the people whose loans were inwards the portfolios of the mortgage companies in addition to thrifts had failed to survive along to brand the payments afterwards the loans were modified.
• The pct of people whose loans had been sold to other investors in addition to who had failed to survive along to brand their payments afterwards nine months was betwixt 49.8% in addition to 58.3%. Only 38.7% of the people whose loans were inwards the portfolios of the mortgage companies in addition to thrifts had failed to survive along to brand the payments afterwards the loans were modified.
• The pct of people whose loans had been sold to other investors in addition to who had failed to survive along to brand their payments afterwards twelve months was betwixt 52.4% in addition to 59.1%. Only 42.4% of the people whose loans were inwards the portfolios of the mortgage companies in addition to thrifts had failed to survive along to brand the payments afterwards the loans were modified.
None of the loans beingness tracked inwards this nautical chart are loans where modifications were made nether the Making Home Affordable Modification Program.
For each investor the pct of people who autumn behind on their payments in addition to human face upward foreclosure over again increases the farther they are from the appointment their loans were modified. H5N1 closer wait at this shows that the percentages are fairly shut in addition to consistent for each of the investors except the Portfolio investor.
The percentages of people who are facing foreclosure over again inwards the Portfolio category afterwards 3, 6, nine in addition to 12 months are significantly lower than the percentages for the others. In the Mortgage Metrics written report it is suggested that this may live due to differences inwards alteration programs in addition to the investor's flexibility to change the price of the loan.
There May Be a Totally Different Reason
Portfolio loans are those kept past the mortgage companies in addition to Thrifts studied inwards this report. These are loans inwards which these companies in addition to thrifts invested their ain money. The other loans they take sold to Fannie Mae, Freddie Mac, the Government (FHA, VA, etc.) in addition to Private Investors on Wall Street. While the monthly payments are made to the mortgage companies in addition to thrifts, they only survive past it on to the terminate investor.
These mortgage companies in addition to thrifts lose to a greater extent than coin on loans inwards their ain Portfolio that terminate upward inwards foreclosure than they practise on the loans they take sold to everyone else. It looks similar modifications they are making on the loans inwards their ain portfolios are to a greater extent than favorable than the modifications they are making on the loans of other investors.
Is There Anything inwards the Report to Support This?
There only happens to live roughly other nautical chart inwards the written report which implies that the mortgage companies in addition to thrifts are doing this. This nautical chart shows the types of loan modifications that were done during the moment quarter of 2009. Here is what that nautical chart reflects:
• The mortgage companies in addition to thrifts reduced the involvement charge per unit on the loans they modified inwards their ain portfolios 84.1% of the time. This was higher than whatsoever other group. The involvement rates were modified 77% of the regime loans. Interest rates were reduced on 43.6% of the Fannie Mae loans modified, 51.3% of the Freddie Mac loans modified in addition to 63.6%of the individual investor loans modified.
• The mortgage companies in addition to thrifts extended the durations of the loan to recover whatsoever reductions inwards payment on 72.4% of their ain loans. They extended the term on 77.6% of the Freddie Mac loans. The percentages of the ease were lower - 47.8% of the Fannie Mae Loans, 46.4% of the Government loans in addition to 13.1% of the Private Investor loans.
• The mortgage companies in addition to thrifts reduced the primary balances on 30.5% of the loans they modified inwards their ain portfolios. They did non cut the primary balances on whatsoever loans for other investors.
• The mortgage companies in addition to thrifts deferred a component of the primary due on 4.7% of the loans they modified inwards their ain portfolios. They alone did this 0.1% of the Fannie Mae loans. There were no primary deferments on whatsoever loans for whatsoever of the other investors.
• The mortgage companies in addition to thrifts alone froze the existing involvement rates on 5.5% of the loans they modified inwards their ain portfolios. The percentages on loans where they froze the involvement rates on loans for the other investors ranged from 5.9% to 16.6%.
Let's define these terms.
• Rate Reduction - The involvement charge per unit on the loan is reduced.
• Rate Freeze - The involvement charge per unit on the loan is frozen at the grade it was at.
• Term Extension - The length of the loan was extended to recover whatsoever reductions inwards payment.
• Principal Reduction - The sum all the same owed on the loan was reduced.
• Principal Deferral - Some of the coin owed was deferred to the terminate of the loan.
This nautical chart clearly indicates that during the moment quarter the mortgage companies in addition to thrifts took activity to give to a greater extent than favorable modifications on the loans inwards their portfolios than on the loans they sold to the others. This is clearly indicated past the fact that they reduced the involvement rates on 84.1% in addition to extended the price on 72.4% of their loans. They also reduced the primary on 30.5% in addition to deferred the primary on 4.7% of their loans.
The surprising affair hither is the 30.5% primary reduction on the loans inwards their ain portfolios. The mortgage manufacture has consistently fought against legislation proposed inwards congress to give judges the ability to practise this. Yet they are doing it on their ain loans.
The mortgage manufacture has been lobbying that loan modifications don't work. They regularly enjoin that spell modifications may temporarily postpone a foreclosure, the bulk of people volition autumn behind on their payments in addition to human face upward foreclosure again. Yet these charts don't demo that. They demo that virtually 60% of the people facing foreclosure whose loans are inwards the portfolios of the mortgage companies in addition to thrifts take been able to remain electric stream on their modified mortgages twelve months afterwards they take been modified.
It looks similar to a greater extent than force per unit area needs to live placed on mortgage companies to change all loans inwards the same style every bit they are modifying those loans inwards their ain portfolio.
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