10% of mortgage mods reduced principal

The number of modifications that cut the mortgage balance, while still small, is growing. Borrowers with loans backed by Fannie Mae and Freddie Mac remain shut out.

By Teresa at MSN Real Estate Jul 6, 2012 12:20PM

House in stormy water (© Steven Puetzer/Getty Images)About 10% of mortgage modifications made in the first quarter included principal reduction, three times the percentage of a year ago.


A new report by the Office of the Comptroller of the Currency found that mortgage servicers reduced principal on 10.2% of the modifications done in the first quarter of 2012, up from 3% in the first quarter of 2011.


The number of homeowners receiving principal reductions is still quite small: 10,400 in the first quarter of 2012, compared with 9,870 in the last quarter of 2011 and about 4,800 in the first quarter of 2011.


The data in the report covers about 60% of mortgages, including loans serviced by the largest nine companies. The data includes loans backed by government-supported entities Fannie Mae and Freddie Mac, which are not eligible for principal reduction.

Homeowners whose mortgages are backed by the Federal Housing Administration and the Veterans Administration also are not eligible for principal reduction. Earlier this year, Edward

DeMarco, the acting director of the Federal Housing Finance Agency, had indicated the agencies were on the verge of rolling out a principal reduction plan, but the decision has been delayed for months.

No matter what Fannie and Freddie do, expect to see more principal reductions next quarter, Bruce Krueger, chief mortgage examiner for the OCC said. The $25 billion settlement reached between the federal government and major mortgage servicers called for tripling the compensation to servicers for principal reductions. That increased payment took effect in January.

"This report does not include any effects of the AG settlement," Krueger told journalists, as reported by Housing Wire. "You will likely see the effects the principal reduction starting in the second quarter."


Other data from modifications made in the first quarter:

  • Interest rates were reduced in 80.6% percent of modifications.
  • The length of the loan was extended in 73.7% of modifications.
  • Principal was deferred in 24.6% of modifications. Fannie and Freddie favor this tactic, which sets aside a portion of the loan and doesn't require any payments on that portion of the loan until the loan is paid off or the home is sold.
  • Monthly payments were reduced by an average of 27.4%, with an average decrease of $437 per month.
Jan 10, 2013 6:53PM
I don't understand why a bank can still report your payments as late when they are first of al,l the reason for you being behind, because for some reason they feel like the customer service representative they have entering your information doesn't make mistakes by missing or entering a wrong digit on your bank account info for a payment, so your behind and another payment becomes due and they put you on a repayment plan and they are still allowed to report to credit bureau as late and your making all the payments on time trying your hardest to get caught up and even after the repayment plan your still behind....now tell me who does that!!..Yes it is true banks are getting away with murder and I feel like if your trying hard to keep your home and making payments the best you know how they should be able to refinance the loan to help get consumers back on track. People have lost jobs, have medical problems and sometimes life itself can take a toll on some people and they only want help and understanding. I can say now my mortgage company fixed the problem and blessed me tremendously. All I can say is prayer and patience because sometimes you get what you least expect by praying about it and letting go..I don't know who believe and who don't but prayers do get answered..in do time.. 
Aug 11, 2012 6:59AM
Although this article may raise the hopes of some in distress, it leaves out one very important factor that has effected many going through modifications. When a lender forgives a portion of one's balance, that portion will be reported to the IRS in 1099 form as earned income, and thus taxed. Many not learning this untill after filing their taxes.
Jul 28, 2012 4:48PM
I am curious...who gets the modified loan where the principal has been reduced?  My bank
(wells fargo) said they aren't doing these loans...who is and who is the recipient?  Just wondering!
Jul 28, 2012 1:36PM
In an interesting twist to this story, in California, San Bernardino County and the cities of Ontario and Fontana are seriously considering seizing the notes of underwater mortgages via "emminent domain" afforded to governments in an attempt to stabilize their markets.  30% of California mortgages are underwater and this may be just a catalyst to force the hands of lenders, but I'm glad to see that lenders and investors are willing to forego some of their "profits" for the good of the communities.

I guess the way it works is simply this... work with the owners or we will repossess the note, give you "fair market value" at today's price (thus guaranteeing a loss) and allowing another investor to finance the property at todays rate.

Should allow for many billions of dollars to be infused into the economy.  Perhaps if everyone was allowed to refinance their homes at todays rates, there would be an artificial "stimulus" by allowing people to spend the savings.

Jul 28, 2012 12:24PM

Before all you "responsible people" start tossing rocks at the "irresponsible people" please do a little homework first. I bought a home in 2001 for 119k, and my bank told me it was worth 280k in 2006. I took 30k out, kept that home as a rental, and bought a bigger home for my growing family for 330k. Every expert we turned to for advice said that was a great move, including both mortgage companies we worked with and many realtors. Two years later the rental was worth 75k and our bigger home's foundation cracked in half and was worth $130k. Those same mortgage companies refused to help us at all so we bailed on both. At the same time my 100k/yr job went to 45k, and I was met with a crippling set of medical bills. Tell me where "irresponsible" came into play?


Those who gave their homes back/we're foreclosed on are not lazy, stupid, irresponsible, etc. Millions of people have a similar story. I didn't receive a bailout, but all of the bank down the street did. Toss your rocks at them.

Jul 28, 2012 12:05PM
Once again, the responsible get screwed and the irresponsible get rewarded.
Jul 28, 2012 10:58AM
I was responsible. I knuckled down and paid my mortgage off in 12 years. Maybe I should get some kind of a rebate check for being responsible. Oh wait, only idiots that bit off more than they could chew get help. What a joke we have become. Seems that people are no longer held accountable for their actions. How many people that are under water with their mortgage, are there because they borrowed additional money for frivilous things like cars, motorcycles, rvs, and vacations. They deserve to go under. Expensive, but very valuable lesson.
Jul 28, 2012 8:20AM
Where was my help when I bought my home in 1984 and interest rates were over 16 percent?
Jul 28, 2012 7:54AM
the red coats gought you by the scruff. it is nearly impossible to see it now that they broke ranks ,assimulated amungst us without that red coat whom sees the true enemy of this we are economic refugees, anybody here of any realeastate appraiser being needled for treason against the tired the weak and the needy you now our huddled asses and republic for that itsits on its ****.
Jul 28, 2012 5:52AM

Why can't we be fair to all those who have been honest? Freddie and Fannie should do the same thing in all states.  We are constantly trying to prove right and wrong, instead of helpng people. Who died and left them in charge? This has been the worst housing market in history and their afraid that by doing the right thing for people who are victims, will send the wrong message? That is just another example of govenment not really caring. We who pay the bills, get little respect! They just don,t care People!!!

Jul 28, 2012 5:29AM
I think it's a crime the banks have kicked people out of their homes when they are still keeping up the home and making payments, but are behind. The power gets shut off, the basements flood and two years later the home molds up so bad it has to be bulldozed. What a waste, and no can be making money off of this.
Jul 28, 2012 12:30AM

Why all of a sudden does it look like the banks are willing to re-negotiate loans and terms on loans?  Has government regulators held them back or did they finally figure out they can still make money by working with the people that have fallen behind.  They can still make a fair amount of money off of the loans by just refinancing them. 

 I still believe, the investors of the loans caused a majority of the economies collapse.  That is not to say the banks weren't at fault, because they were, but they need to start taking resposibility for their actions in this economic mess also.  This mess goes all the way up the chain, and congress is just as much at fault as the rest for letting the policies stand for investors to capitalize off of bad mistakes lower down the chain. 

I am really glad to see if for no other reason than to save a little face the banks willing to negotiate with some people on their properties.  Maybe now, real estate values for those who managed to stay afloat thru this will see values of the property they own start going up in value. 

Banks are not in the real estate business.and neither were the investors.  They only wanted to see a large return on investment and sometimes that doesn't happen.  Look at the stock market as it goes thru its growing pains and the ups and downs.

Maybe this is the start of something good finally.  The country could sure use it..........

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