Study Buoys Mortgage Modification

"Cutting financially troubled borrowers' monthly mortgage payments by more than 10% reduces the chances that they will fall behind again after their loan is modified, a study found."

"While modifications that result in lower payments are increasing, nearly half of all loan workouts still result in the same or higher payments, the study found."

"The report comes as a weak economy and falling home prices are creating problems for a number of borrowers, including many who previously had good credit. The biggest percentage jump in troubled loans was for prime mortgages, with 2.4% of these loans more than 60 days past due at the end of the fourth quarter, up from 1.1% at the end of the first quarter. The portion of subprime loans that were more than 60 days past due climbed to 16% from 11% during this same period. Overall, more than one in 10 loans were 60 days past due, the report found."

"Some borrowers fall behind again because of job loss or other problems, but whether or not the borrower gets payment relief also appears to play a role in the outcome. The redefault rate was just 26% after nine months when monthly payments were cut by more than 10%, compared with about 50% when the payment increased or remained the same."

"Servicers have stepped up their efforts to modify loans and reduce borrowers' payments in response to pressure to reduce foreclosures. The percentage of modifications that reduced loan payments by more than 10% increased to 37% in the fourth quarter from 26% in the third quarter. Still, roughly one in four borrowers saw their payments increase after their loan was modified."

"Mortgage servicers have been more successful modifying loans that are held on their own books than those that are owned by mortgage investors. Nearly half of investor loans were at least 60 days delinquent nine months after they were modified compared with about 30% of loans that are held in bank portfolios. Servicers said they have more flexibility to rework loan terms for mortgages they own than for those held by investors."