Seriously delinquent residential loans that were modified performed better than loans that weren’t modified, though loans already in foreclosure were less likely to be modified. Modified loan performance varied by servicer.
At least 31 percent of home loans that were either 60 days or more past due or in the foreclosure process as of December 2008 have been modified at least one time.
Those loans, according to a new report, have performed far better than their non-modified, counterparts that had also been seriously delinquent at the height of the financial crisis.
Those findings were reported Monday by Moody’s Investors Service.
The New York-based ratings agency said that it reviewed around 1.1 million loans as of June that had been seriously delinquent in late 2008.
Of the loans that weren’t modified, 45 percent were already in foreclosure in 2008.
“Even though modified loans performed better than those that were not modified, it is difficult to halt the foreclosure process once it has been started,” Moody’s Vice President and Senior Credit Officer William Fricke said in the report. “Servicers, at least initially, chose to modify loans with fewer operational challenges and legal hurdles.”
Among mortgage servicers analyzed by Moody’s, performance on loans modified by Ocwen Loan Servicing LLC was superior to loans modified by other servicers when factoring in volume and quantity, according to the report.
At 35 percent, Ocwen modified the biggest share of seriously past-due loans as of December 2008. Its share of modified loans that are now current was the second highest at 41 percent, while just 22 percent of modified loans were now delinquent — the lowest of any servicer.
“The performance of Ocwen’s modified loans could reflect the company’s higher propensity to re-modify loans versus other servicers,” Fricke speculated.
He noted that Chase, which had the highest share of modifications that are now current — 44 percent — was conservative in its approach and had the lowest number of overall modifications. Chase focused on performance instead of volume.
The report indicated that 43 percent of GMAC’s modified loans liquidated — the highest rate of all servicers.
“Although this may be attributed to possible flaws in its modification decision process, it could also reflect that the composition of its delinquent loan portfolio in 2008 may have been better suited to short sales,” the report stated. “GMAC’s performance has improved since transferring servicer operations for its GMACM loans to Ocwen in first-quarter 2013. Previous loan modifications and improved economic conditions also boosted performance.”
