More modifications, but not all are successful

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Joseph Smith Jr., who is overseeing compliance by the top five banks with the historic settlement of mortgage abuses charges in February, has issued an update. It notes that the banks have extended more than $26 billion in relief to more than more than 300,000 homeowners, an average of roughly $84,385 per borrower.

The conventional wisdom is that banks, led by Bank of America, will fulfill their settlement obligations sooner than expected. The incentive is that banks get extra credit for doing more in the first year of the three-year settlement period. They have every reason to front load the process. All this is encouraging, and I certainly do not want to rain on the recovery parade. At the same time, it should be noted that modified mortgages are not necessarily a complete solution.

Non-agency mortgages, for example, even when modified, are showing signs of stress. Bloomberg notes a report from JPMorgan showing that more than 28,000 modified home loans (non-agency securities) turned delinquent in September, a rise of 24 percent from the prior month. The percentage of all non-agency loans between 30 and 60 days past due soared 0.44 percentage point to 3.54 percent, the highest since February 2010.

These were the types of mortgages that are prone to recidivism. Still, the great hope was that a modification would push them into the performing category permanently. Modifications of other loan types will likely have a higher chance of success long-term.

For more:
- here's an overview from the Washington Post
- here's the article from Bloomberg

Related articles:
Bank of America quick to comply with mortgage settlement

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