Foreclosures likely to rise because of poor loan-modification performance, report says
Major financial institutions' poor record with modifying home mortgage loans will probably lead to an increase in the number of U.S. foreclosures, according to a report released Monday.
About 36,500 mortgage modifications on private mortgages were completed in December 2010, according to Fitch Ratings, which studied those loans packaged into mortgage-backed securities. That number is 58% below a high hit in April 2009.
“The combined efforts of HAMP [the Obama administration's Home Affordable Modification Plan] and other mortgage loan modification programs have made little more than a dent in the large volume of outstanding distressed loans,” said Diane Pendley, a Fitch managing director and one of the report’s authors.
The report projected that about 60% to 70% of modifications done on subprime loans and other risky types of mortgages will default anew within a year of modification. New defaults are also projected on 50% to 60% of modified prime loans.
Because of problems with banks' foreclosure processes -- including the "robo-signing" issue, in which some employees certified documents they never read -- the average length of time that it takes to foreclose on a home is now 22 months, according to Fitch. The company estimates it will take four years for the market to work through the stock of distressed properties currently facing the market.
-- Alejandro Lazo
Photo: A foreclosure sign outside a home in Denver. Credit: David Zalubowski / Associated Press