On April 3, the Office of the Comptroller of the Currency and the Office of Thrift Supervision jointly released their quarterly report on first lien mortgage performance for the fourth quarter of 2008. The report covers mortgages serviced by nine large banks and four thrifts, constituting approximately two-thirds of all outstanding mortgages in the country.
According to the report, at the end of the year, just under 90% of mortgages were performing, compared with 93% at the end of September 2008. The report also states that the biggest percentage jump with respect to a decline in credit quality was in prime mortgages, which are typically the lowest risk category and account for nearly two-thirds of all mortgages serviced by the reporting institutions.
With respect to modified mortgages, the report states that the re-default rate on such mortgages was high and rising during the first three quarters of 2008. The report does not set forth definitive reasons as to why the re-default rates remain so high, although it notes that it could be from the “worsening economy, excessive borrower leverage, or poor initial underwriting.” Finally, the report notes that re-default rates were consistently lower for modifications that resulted in lower monthly payments.