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, October 27, 2010
TESTIMONY OF JOSEPH H. EVERS DEPUTY COMPTROLLER FOR LARGE BANK SUPERVISION OFFICE OF THE COMPTROLLER OF THE CURRENCY BEFORE THE CONGRESSIONAL OVERSIGHT PANEL
OCTOBER 27, 2010
Statement Required by 12 U.S.C. § 250: The views expressed herein are those of the Office of the Comptroller of the Currency and do not necessarily represent the views of the President.
analysis. loan-level data based on standardized definitions and data elements. The Mortgage Metrics Reports are dynamic documents that continue to evolve to address areas of supervisory interest. The data included in the Mortgage Metrics Reports today represent 65 percent of all first-lien residential mortgages outstanding in the country. In our most recent report. which reflects data at the end of June 2010. The OCC instituted loan-level mortgage data collection from the banks it supervises in 2008 and published this information in quarterly Mortgage Metrics Reports. and reporting of data the OCC collects from national banks relating to the performance of first-lien residential mortgages. and the effort to validate the data is extensive. we expanded our reporting and joined with the Office of Thrift Supervision (OTS) to publish data on the performance of loans and loan modifications. In this role I oversee the collection. Our efforts to report on this very large portfolio of mortgage loans.Introduction Chairman Kaufman and members of the Congressional Oversight Panel (Panel). and contribute to the public discussion. Later that year. foreclosures. The scope of our data requests from servicers is large. totaling nearly $6 trillion 1 . and to highlight trends in loss mitigation activities. better inform policy makers. has allowed us to develop what we believe to be one of the most accurate and comprehensive data sets available on first-lien mortgages in the country. and re-defaults occurring on mortgages held by national banks and federally regulated thrifts. I appreciate the opportunity to share with the Panel insights that this data provides on mortgage modification activities. using validated. the reporting institutions serviced almost 34 million first-lien mortgage loans. my name is Joe Evers and I am a Deputy Comptroller and national bank examiner in the Large Bank Supervision division at the Office of the Comptroller of the Currency (OCC).
thus producing better information for our particular supervisory purposes. More than 90 percent of the mortgages in the portfolio are serviced for third parties because of loan sales and securitization. To accomplish this. the OCC recognized the supervisory need for more comprehensive data on the performance of mortgages and loss mitigation activities of the largest national bank servicers regulated by the OCC. My statement will then discuss the evolution of mortgage modification efforts and address trends the OCC has observed pertaining to loan modifications and delinquencies on loan modifications including: • • • • Home retention actions (number of payment plans and loan modifications). and better information for policymakers. Background of the OCC and OTS Mortgage Metrics Reports In late 2007. the OCC made a formal information 2 . At the same time. In order to best address the areas of interest described in the Panel’s letter of invitation. my testimony will first provide general background about our Mortgage Metrics Reports. the OCC undertook a comprehensive initiative to improve the way that mortgage performance could be measured. the lack of standardized loan modification data and reporting within the industry made it difficult to obtain accurate. Changes to monthly payments resulting from modifications. Given this combination of a lack of information and inconsistent standards for reporting the information that was available.in outstanding balances. and Post modification performance (re-defaults). Types of modification actions. reliable and timely information on loan modifications including post loan modification performance. We realized that the mortgage data being reported to the banking agencies were not giving us a sufficiently granular look at mortgage performance and loss mitigation activities.
The OTS separately issued its first report on mortgage metrics on July 3. the OCC began to work with the OTS2 to issue a joint report in September 2008. “Agencies Release Joint Mortgage Metrics Report For the Second Quarter of 2008. as the mortgage crisis unfolded and the number of delinquent borrowers increased to unprecedented levels. October 2007-March 2008. as the OCC Mortgage Metrics Report. 2008. the OCC in March 2009 directed the largest national banks to implement programs designed to achieve more sustainable modifications. This traditional approach to loss mitigation. servicers’ informal payment plans and loan modifications were done in low volume and often resulted in mortgage payments that increased or did not change. However. October 2007-March 2008.1 Before even completing this first report.3 Evolution of Mortgage Modification Efforts Early in the mortgage crisis. 3 See OCC and OTS News Release. 2008. 2008. 1 2 See OCC Mortgage Metrics Report. gave delinquent borrowers experiencing temporary financial problems a chance to catch-up on making their loan payments. This shift was aided by implementation of the Home Affordable Modification Program (HAMP) and OCC’s mortgage metrics data that put a bright spotlight on high re-default rates for loan modifications completed in 2008. which was previously successful in normal economic times. released on June 11. servicers increasingly shifted from traditional loss mitigation activities to loan modification programs designed to achieve affordable and sustainable loan payments.” September 12. As a result of those high re-default rates.request to the Chief Executive Officers of the largest national banks to submit monthly loan-level mortgage data to the OCC. The results of this first data call were published in June 2008. 3 .
464 783 127.7% -27.534 504.4% 8. Second Quarter 2010 can be accessed at http://www. Home Retention Actions The report shows that during the second quarter 2010. During the quarter.362 -64.503 120.722 601. the number of trial modifications and other payment plans declined as servicers worked through their portfolio of seriously delinquent mortgages to determine borrower eligibility under HAMP and each servicer’s own proprietary loan modification programs.419 permanent loan modifications.6% -65.617 20.679 96.946 73. the OCC and OTS released the most recent Mortgage Metrics Report on data through the second quarter 2010 which provides current information and trends in loan modification activity and performance.1 percent from the first quarter of 2010.occ.292 home retention actions. including modifications made through HAMP and other modification programs.html 4 . 2010.201 79.673 64.587 642. which is an increase of 18.048 259.902 272. Table 1.gov/news-issuances/news-releases/2010/nr-ia-2010-112.9% 20. servicers implemented 504.3% -21.081 3/31/10 131.7% -23.994 131. which include loan modifications.974 418. While the number of permanent modifications increased.551 695.8% -19.531 9/30/09 130.5% -14.2% -29.666 92.269 101.473 108. servicers implemented 273.292 1Q %Change 25.709 163. Number of New Home Retention Actions 6/30/09 Other Modifications HAMP Modifications Other Trial Period Plans HAMP Trial Period Plans Payment Plans Total 142.015 121.207 100.5% 4 The OCC and OTS Mortgage Metrics Report.5% 1Y % Change 15.764 188.409 12/31/09 103.September 2010 Mortgage Metrics Report4 On September 24.330 6/30/10 164. trial performance plans. and payment plans.
and underwriting based on an affordable housing debt to income ratio. 5 . payment affordability and sustainability is primarily achieved through some combination of rate reduction and term extension. In such programs. In determining the appropriate mix of modification actions to take. As detailed in Table 2 below. mortgage servicers strive to balance the need of borrowers for affordable and sustainable payments with the rights and interests of investors. servicers are increasingly relying on modifications that emphasize payment affordability and sustainability through lower monthly payments. The types of modification actions have different effects on borrowers’ mortgage structures and payments. The decline in the percentage of modifications involving principal reduction over the past year reflects servicers’ emphasis on achieving affordable and sustainable payments for homeowners by a combination of reduced interest rates and other actions. term extensions were used in 51 percent of all modifications.Types of Modification Actions Servicers generally use a combination of actions when modifying mortgages. principal deferrals were used in 11 percent. Over time. these differences may have varied effects on the long-term sustainability of mortgages. and principal reductions were used in two percent of the modifications. servicers added past due interest and fees to the outstanding loan balance in 94 percent of all modifications during the second quarter. verification of income. The resulting outcome has been a substantial increase in modifications that provide borrowers with significantly lower monthly mortgage payments. To balance these objectives. and reduced interest rates in 87 percent of modifications. Consistent with the sequence of loss mitigation actions established by HAMP and generally followed for other modifications as well.
8% 9/30/09 68.5% 5.4% 27.281 2.3% 45.413 257.339 21.2% 237.811 11.5% 347.5% 1Q %Change 2.0% 2.3% 1.9% 115.5% 1.0% 0.3% 298.7% 31.1% 1.5% 131.7% 47. to 56 percent.2% 1.3% 6.040 2.3% 11.7% -44.8% 1.2% 3/31/10 91.2% -91.0% 45.3% 32. Changes to Monthly Payments Resulting from Modifications In addition to providing data on the types of loan modifications.2% 51.1% 2.9% 20.1% 11.677 102.957 4.183 237.0% 12.518 2.156 17.194 3.8% 1. This increase in modifications that reduce the borrowers’ monthly mortgage payments continued over the last several quarters as servicers focused on more sustainable modifications.2% 8.4% 82.5% -58.568 5.0% 1Y %Change 42.7% 758.447 102.321 8.801 11.218 14.554 140.4% 13.0% 3. the Mortgage Metrics Reports include information on the changes to monthly principal and interest payments resulting from the modifications.1% 87.8% 10.9% 10.9% 12/31/09 82.8% 72.0% 6/30/10 94.516 211.326 89. 6 .0% 4.885 105.4% 2.8% 84.2% -78.090 4.9% 5.5% 174.9% -83.630 191.2% 8.435 7. Changes in Loan Terms for Modifications Made Through the Second Quarter of 2010 (Percentage of Total Modifications) 6/30/09 Capitalization Rate Reduction Rate Freeze Term Extension Principal Reduction Principal Deferral Unknown* 65.9% 45.865 30.2% 81.6% Total Number of Changes in Each Category Capitalization Rate Reduction Rate Freeze Term Extension Principal Reduction Principal Deferral Unknown* 93.4% -47. Modifications that reduced payments by more than 20 percent continued to increase.1% -53.Table 2.553 106.060 2.407 56. up from 55 percent the previous quarter.027 1.9% *Processing constraints at some servicers prevented them from aggregating and reporting specific modified term(s).6% 1.512 62.464 23.443 3.5% 24.341 65.205 1.8% 5.496 8. Mortgage modifications that lowered monthly principal and interest payments increased to over 90 percent of all modifications during the second quarter 2010.2% 12.901 105.
Changes in Monthly Principal and Interest Payments Resulting from Modifications (Percentage of Modifications)* 6/30/09 Decreased by 20% or More Decreased by 10% to Less than 20% Decreased Less than 10% Subtotal for Decreased Unchanged Increased Subtotal for Unchanged and Increased Total 38.5% -12.9% -18.703 141.964 122. At the end of the second quarter of 2010.9% 100.644 4. Modifications made during the second quarter of 2010 reduced monthly payments by an average of $427.1% 18.459 130.5% -10.3% 121.0% 3/31/10 54.9% 87.6% 16.1% -4.467 48.1% 3.086 126.379 40. 46 percent of these modifications remained current or were paid off and another 10 percent were 30 to 59 days delinquent.8% 13.399 21.1% 90.3% 180.020 in the second quarter of 2010.6% 19.860 27.0% 12/31/09 41.1% -30.3% 100.213 110.730 47. servicers have modified 1.1% 82.0% 18.1% 21.1% 1.875 43.6% *Payment change information was not reported on 895 modifications in the second quarter of 2009. 2.8% 19.9% -11.7% 27. HAMP modifications made during the quarter reduced payments by an average of $608.827 245.831 26.665 30.273 22.691 28.4% 1Y %Change 45.3% 15.136 21.036 23.9% 78.764 6.3% 17.4% 21.8% 20.140 in the first quarter of 2010 and 1.432 5.6% -14.663 34.822 16.9% -21.0% 100.7% 3. The emphasis on payment affordability and sustainability has resulted in a 62 percent reduction in the average monthly payment from a year ago.144 in the third quarter of 2009.8% -54.122 5.7% 9.Table 3.707 103.9% 12.6% 100.038 24.2% -19.2% 92.0% 1Q %Change 2.9% 17.9% 21.2% 18.0% -54.6% 16.3% 24.0% 6/30/10 56. Status of Mortgages Modified in 2008-2010 Since the beginning of 2008.3% 4.630 21.210 in the fourth quarter of 2009.4% 17.7% 14.0% 4.4% 2. 1.4% 8.336 153.239.4% (Number of Modifications) Decreased by 20% or More Decreased by 10% to Less than 20% Decreased Less than 10% Subtotal for Decreased Unchanged Increased Subtotal for Unchanged and Increased Total 54.8% 19. More than 26 percent of 7 .4% 79.750 29.0% 9.829 26.2% 72.103 51.748 100.9% 55.271 201.0% 9/30/09 37.9% -0.7% 100.8% -18.6% 17. compared with other modifications that reduced average monthly payments by $307 overall.338 25.151 23.967 272.9% 8.142 21.0% -7.896 loans.313 6.1% -55. 1.786 31.023 230.
8% 10.1% 0.3% 9. including three.6% 12.2% 28.6% 8.2% 6.8% 73. and twelve months post- 8 . Re-default is a useful metric to gauge payment sustainability of loan modifications.7% 10.8% 10.9% Paid Off No Longer in the Portfolio 4.6% 26.1% 1. Status of Mortgages Modified in 2008-2010 Total 2008 2009 First Quarter 2010 Total 421. Among the measures we report are the number and percentage of modified loans that are 30.2% 11.9% 1. nine. or 90 days delinquent or in process of foreclosure at several time periods after the modification. identify unsafe and unsound loan mitigation practice such as loss deferral.322 587.3% 0. Our reports show re-defaults in a variety of ways to more comprehensively reflect the severity of the delinquency and the amount of time that has elapsed after the modification.7% 45.6% No Longer in the Portfolio 3.6% *Processing constraints at some servicers prevented them from reporting the reason for removal from the portfolio.4% 9. and four percent had completed the foreclosure process.2% 11.8% 596.3% 19.2% Total Modifications that Reduced Payments by 10% or More Modifications that Reduced Payments by 10 Percent or More 30-59 Seriously Foreclosures Completed Current Days Delinquent in Process Foreclosures Delinquent 57.0% 30–59 Days Delinquent 7.6% 5.098 231.7% 0. 60.1% No Longer in the Portfolio* 8.4% 2.6% 1.3% 2.0% Paid Off 0.8% 2.896 Current 26.0% Paid Off 2. six. nine percent were in the process of foreclosure.8% 46.100 33.1% Completed Foreclosures 8.0% Seriously Delinquent 32.7% 0. and determine loan loss reserves.796 Modifications that Reduced Payments by Less than 10 Percent 30–59 Seriously Foreclosures Completed Total Current Days Delinquent in Process Foreclosures Delinquent Modifications that Reduced Payments by Less than 10% 643.476 1.8% 33.the modifications were seriously delinquent.5% 4.239. OCC Re-default Reporting Methodology A re-default occurs when a modified loan becomes delinquent on contractually required payments subsequent to the modification.5% Foreclosures in Process 13.1% 4. Table 4.
or have completed the foreclosure process after the modification are removed from the calculation.5 Performance of Modified Loans More recent modifications have performed better than earlier modifications every quarter since the end of the first quarter of 2009.. All modified loans that have been repaid in full. At six months after modification. The re-default rate refers to the percentage of modified loans that subsequently redefault relative to the total number of modified loans. These measures enable us to assess the sustainability of a modification over time. unadjusted number of modified loans. Re-default rates reported by other sources may be based on the total. This trend of lower delinquency rates following modification corresponds with the increasing emphasis on repayment sustainability through reduction of the borrower’s monthly payment. compared with 43 percent of the modifications made during the first quarter of 2009. nearly 21 percent of the modifications made in the fourth quarter of 2009 were seriously delinquent. 5 9 . sold. Our Mortgage Metrics Reports show re-default rates based on the number of modified loans that remain in effect at the measurement date (e. refinanced. We also report on the comparative performance of modifications implemented during specific calendar quarters to gauge the effectiveness of changes in modification actions or criteria. the number of modified loans that are 60 or more days delinquent or in the process of foreclosure at six months after the modification as a percentage of all modified loans still in effect six months after the modification).modification.g.
5% 40. refinanced. At the end of the second quarter. for modifications made since January 1. Data include only modifications that have had time to age the indicated number of months. The better performance of more recent modifications corresponds with the ongoing emphasis on lowering monthly payments and improving payment sustainability.8% 18.8% 33.5% 27. All loans that have been repaid in full. compared with the 33 percent of modifications that reduced payments by less than 10 percent.9% 32.7% --- 12 Months after Modification* 55.Table 5. Our data also show that modifications that result in lower monthly payments consistently perform better over time than those that increase payments or leave payments unchanged.4% 11.7% 14. Modified Loans 60 or More Days Delinquent Modification Date First Quarter 2009 Second Quarter 2009 Third Quarter 2009 Fourth Quarter 2009 First Quarter 2010 3 Months after Modification 30. increased. 2008. compared with 2008 modifications. measured as 60 or more days delinquent.1% 6 Months after Modification 42. and the redefault rates were lower among modifications made in 2009 and 2010. The following tables present re-default rates. or left the payment unchanged. Re-Default Rates by Change in Payment Modifications that reduced payments by 10 percent or more performed better than modifications that reduced payments by less than 10 percent. or completed the foreclosure process are removed from the calculation. 10 .7% 11. Data show re-default rates decreased as reduction in monthly principal and interest payments increased. with better performance directly correlating to the amount of payment reduction.7% -- 9 Months after Modification 51. sold. 58 percent of modifications that reduced payments by 10 percent or more were current and performing.2% ---- *All re-default data are based on modified loans that remain in effect at the specified amount of time after the modification.0% 43.7% 20.
2% 31.5% 46.2% 44. as well as an increasing number of other modification programs. Table 6.1% 55.7% 12 Months after Modification 34.7% 26.9% 42.4% 63. also attempt to increase sustainability by not only reducing payments.0% 33.3% 35.9% 19.4% 49.1% 16.7% 63.7% 46.0% 51.6% 26.1% 67.3% 53.1% Table 7.7% 32.2% 9 Months after Modification 33. 11 .2% 51.3% 45.8% 46.0% 57.2% 13.6% 29.6% 60. Re-Default Rates of Loans Modified in 2009 by Change in Payment (60 or More Days Delinquent)* 3 Months after 6 Months after Modification Modification Decreased by 20% or More Decreased by 10% to Less than 20% Decreased by Less than 10% Unchanged Increased Total 11.2% 10.7% 19. Data do not include modifications for which payment change data was not reported.4% 40.7% 23.7% 63.0% 40.9% 54.4% 48.HAMP.3% 9 Months after Modification 28.8% 34.5% 58.1% 17.9% 48.5% 31.2% 57.0% 68. Re-Default Rates of Loans Modified in 2008 by Change in Payment (60 or More Days Delinquent)* 3 Months after 6 Months after Modification Modification Decreased by 20% or More Decreased by 10% to Less than 20% Decreased by Less than 10% Unchanged Increased Total 15. but also targeting monthly payments relative to the borrowers’ income and ability to repay the loan.8% 20.9% 65.0% 11.4% 49.2% 20.7% Table 8 Re-Default Rates of Loans Modified in 2010 by Change in Payment (60 or More Days Delinquent)* 3 Months after 6 Months after Modification Modification Decreased by 20% or More Decreased by 10% to Less than 20% Decreased by Less than 10% Unchanged Increased Total 8.1% ------- 9 Months after Modification ------- 12 Months after Modification ------- *Data include all modifications implemented during 2010 that have aged the indicated number of months.0% 12 Months after Modification 39.3% 41.
Conclusion Since the mortgage crisis began. This has required servicers to make substantial investments in their operations and fundamental changes in the types of modifications being offered. 12 . While much has been done. mortgage servicers have been confronted with an unprecedented number of borrowers facing difficulties in meeting their mortgage obligations. Our data show that servicers are adjusting their programs to use a combination of factors to provide meaningful reductions in borrowers’ monthly mortgage payments. much more still needs to be accomplished. The result of these efforts is demonstrated in the improved longer-term performance that we are seeing in more recent mortgage modifications that have emphasized lower and more sustainable monthly payments for borrowers. The OCC and OTS Mortgage Metrics Reports have helped to fill a critical void in monitoring and measuring loan modification activities and post modification loan performance. resulting in more sustainable modifications.
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