Alarm over mortgage ‘delinquencies’

Alarm over mortgage ‘delinquencies’
By Joanna Chung in New York
Copyright The Financial Times Limited 2009
Published: April 3 2009 19:50 | Last updated: April 3 2009 19:50
http://www.ft.com/cms/s/0/525c45a6-207e-11de-b930-00144feabdc0.html


The least risky mortgages in the US are showing the sharpest jump in “serious delinquencies”, according to a report released on Friday that raised fresh concerns about the health of the US economy.

The report showed that credit quality in all loan categories continued to decline in the fourth quarter of 2008, with the highest risk subprime mortgages showing, as expected, the highest level of serious delinquencies – defined as loans in arrears for 60 or more days.

But the biggest percentage jump was in prime mortgages, the lowest risk category, according to the joint quarterly report of the Treas ury’s office of the comp troller of the currency and the office of thrift supervision.

At the end of the fourth quarter, 2.4 per cent of prime mortgages were seriously delinquent, more than double the 1.1 per cent recorded at the end of the first quarter – with a “significant rise” from the third to fourth quarter.

John Dugan, comptroller of the currency, said that while the increase came from a low level, the trend was a “matter of concern”, adding that prime mortgages accounted for nearly two-thirds of all mortgages.

Just under 90 per cent of all mortgages reported were performing at the end of the year, compared with 93 per cent at the end of September 2008. Meanwhile, re-default rates on modified mortgages were both high and rising during the first three quarters of 2008, with loans modified in the third quarter showing the highest re-default rates.

Re-default rates were consistently lower for modifications that resulted in lower monthly payments. When modifications decreased monthly payments by more than 10 per cent, only about 23 per cent of the loans became seriously delinquent six months later.

By contrast, 51 per cent of the loans in which payments remained unchanged were seriously delinquent after six months. The comparable number for loan modifications in which payments increased was 46 per cent.

“The trend toward lowering payments to make home mortgages more affordable is moving in the right direction,” said John Bowman, OTS acting director.

The report covers mortgages serviced by nine large banks and four thrift associations, constituting about two-thirds of all outstanding mortgages in the US.