Mortgage Modification Delinquency Rates Decrease

By Kyle Chezum Updated on 2/7/2011

2/07/11

Most borrowers who receive mortgage modifications end up delinquent again within a year.  Banks have been hesitant to modify mortgage for this reason.  But a recent report released by Fitch Ratings Ltd., a credit rating agency based in New York, shows that this tendency toward repeat delinquency may be changing.

The new statistics released by Fitch reveal that mortgage modifications provided without government backing will fail about 50% to 60% of the time.  The failure rate is higher for subprime loans, which fail 60% to 70% of the time.  While these numbers are still discouragingly high, Fitch’s data shows that the delinquency rate for modified mortgages has decreased during the past year.

Last June, banks expected up to 75% of modified mortgages to fail, in some cases.  The data backed it up.  In 2010, 11% of subprime mortgages were modified twice or more.  This illustrates the difficulty of keeping homeowners afloat through modifications.  The federal HAMP program has met with only marginal success since its inception, modifying just 500,000 mortgages, a tally far less than the millions expected.

But many banks have begun to take a more favorable outlook on mortgage modifications, and Fitch’s report may help solidify this changing perspective.