Report: Half of U.S. home loan modifications default again

More than half of the borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report released Thursday.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

Modifications are ``clearly not working well, and it's not a surprise,'' said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Va. ``It's pointless to rewrite these loans because they're underwater.''

The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.

President Barack Obama's administration is pressuring lenders to alter loans to reduce the number of properties lost to foreclosure. About 4.5 million foreclosure filings are expected in 2010, according to RealtyTrac, an Irvine, Calif.-based seller of default data.

Joe Evers, deputy for large bank supervision at the Comptroller of the Currency, said borrowers were more likely to default when their monthly payments aren't reduced enough in modifications to make staying in a home affordable, Evers said.

``Our data show that when you reduce payments by 20 percent or more, you have a tendency for lower re-default rates,'' he said from Washington.