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Redefaults after a loan modification are up

Redefault after a loan modification are up according to report

According to Amherst Securities Group, default and prepayment rates on non-agency, private-label mortgage-backed securities (MBS) were constant in November.

However, re-performance rates, where payments return to less than two months delinquent, were down and re-default rates “tragic” in November, according to market commentary provided by the firm.

The Amherst report, based on November payment data covering 98% of loans backing private-label MBS, said cash flow velocity continued to decline.

Based on performance data, Amherst projects that always-performing loans fell to $905bn in November from $930bn in October, as first-time defaults came in at $16bn, from $16.8bn in October. Prepayments of $8.3bn were unchanged from the previous month.

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Re-performing loans totaled $117.3bn in November, down from $118.1bn in October. Loans totaling $12.8bn became re-performing in November by getting back within two payments delinquent, down from $13.4bn in October. Total non-performing loans were $484.8bn in November, from $486.1bn in October.

Re-defaults after modification were $12.8bn, or 10.9%, up from 10.5% last month

Laurie Goodman of Amherst has said the fundamentals of certain loan modification programs put them at a disposition for unsuccessful modification. The Treasury Department’s Home Affordable Modification Program (HAMP), for example, is “destined to fail” as it does not address negative equity.

Any solutions, she says, must provide principal write-downs and address the loss allocation among first lien and second lien investors. The Treasury Department continues to establish the infrastructure for a HAMP second lien program, sources tell HousingWire.

A recent report by the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) indicated the re-default rate on modified loans seems to be improving for newer vintages. Of the most recent modifications made in Q209, 18.7% were 60 or more days delinquent three months after the modification, for example, compared to 33.3% in Q208 and 30.7% in Q109.

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