Mortgages performed better in the third quarter than a year ago but quality has tapered off since the second quarter, the Office of the Comptroller of the Currency said.
Among more than $5 trillion in mortgages outstanding at the largest banks, 88.6% were current and performing in the third quarter, according to the OCC Mortgage Metrics Report. That's up from 88% a year ago but down one basis point since the second quarter due to an increase in early-stage delinquencies. The percent of mortgages that are 30 to 59 days past due jumped more than 10% from the previous quarter and 3.6% from a year earlier.
Bruce Krueger, the OCC's lead mortgage expert, downplayed the increase in early-stage delinquencies, pointing out the numbers appeared higher because the third quarter was several days shorter than the second quarter.
"We do not believe the uptick in the third quarter is any sign of budding problems coming down the road," Krueger said in a conference call. "As we're now in the early stage of the fourth quarter, we can see that delinquencies are reverting back to their normal seasonal trend line."
Krueger pointed to the drop in new foreclosures as the more positive trend and said he expects it to continue as the economy improves. Newly initiated foreclosures fell 16.5% from the previous quarter and 27.4% from a year earlier, to 252,604 in the third quarter. At the same time, seriously delinquent loans were flat from the second quarter and down more than 10% from a year ago.
The OCC said the decline in foreclosures year-over-year has been largely driven by improving economic conditions, servicing transfers and increased effort by servicers to keep borrowers in their homes through loan modifications, payment plans and other retention programs.
"We are seeing the effects of the [home] retention actions out there and additional efforts in trying to work with borrowers to keep them in their home," Krueger said.
During the quarter, mortgage services implemented more home retention actions, at 382,899, than they did issuing new foreclosures.
The decline in foreclosures can also be attributed, in part, to the efforts of the five servicers involved in the $25 billion national mortgage settlement — Citigroup (NYSE:C), Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Ally Financial. Though the bulk of the relief they have provided to underwater borrowers has been through short sales, the have modified more than $5 billion of mortgages and refinanced roughly $1.4 billion of loans since the settlement took effect in March, according the Office of Mortgage Settlement Oversight.
In the quarter that ended Sept. 30, lenders modified more than 136,000, including more than 25,000 in California and nearly 14,000 in Florida, according to the OCC.
Still, there is strong evidence that loans that are modified now are at risk of falling into default down the road
Since 2008, more than 2.7 million mortgages had been modified through the second quarter. Less than half of those modifications were current at Sept. 30. Some have paid off in full, but the vast majority of the rest are either delinquent or in the foreclosure stage, according to the OCC's data. One-third of the modified loans were delinquent a year of being modified.
"Re-default rates measured at 30 or more days delinquent provide an early indicator of mortgages that may need additional attention to prevent more serious delinquency or foreclosure," the report cautioned.
The quarterly report looks at first-lien residential mortgages among nine financial institutions with the largest mortgage-servicing portfolios. These institutions represent 58% of all outstanding mortgages in the country.