More homeowners fell behind on their payments during the third quarter of 2009, but fewer were funneled into the foreclosure process as loan servicers engaged in more loan workouts, modifications and short sales, according to a new report.

Foreclosure starts on loans guaranteed by Fannie Mae and Freddie Mac fell 15 percent from the second quarter to the third quarter, the Federal Housing Finance Agency said in its quarterly Foreclosure Prevention and Refinance Report.

The 254,200 foreclosure starts seen during the quarter helped push the number of loans guaranteed by Fannie and Freddie that were in the process of foreclosure or three or more payments behind at the end of September to 1.27 million — a 20 percent increase from June and up 174 percent from a year ago.

The number of loans delinquent by 60 days or more also grew by 260,300, to nearly 1.6 million.

Completed foreclosure and third-party sales climbed 23 percent from the second quarter to the third, to 71,000. But foreclosure sales as a percentage of foreclosure starts fell from 39 percent to 29 percent over that time, due to Home Affordable Modification Program (HAMP) trial loan modifications and other foreclosure prevention strategies, the report said.

During the first nine months of the year, Fannie and Freddie’s loan servicers allowed 170,500 foreclosure and third-party sales, a number equal to about 14 percent of the average number of loans that were delinquent by 60 days or more during the period. …CONTINUED

By way of comparison, Fannie and Freddie’s loan servicers entered into "home retention solutions" on 574,100 loans, or about 46 percent of loans delinquent by 60 days or more.

From the second quarter to the third, HAMP trial modifications were up 320 percent, to 278,100; repayment plans were up 30 percent, to 182,700; workouts were up 22 percent, to 105,500; and completed loan modifications were up 14 percent, to 36,700.

Nearly half of loan modifications completed in the third quarter — a number that excludes HAMP trial modifications — lowered borrowers’ payments by more than 20 percent, the report said.

Although most loan modifications end up delinquent again, loans modified in recent quarters performed slightly better six months after modification than did earlier modifications. About 44 percent of loans modified during the first quarter were still current after six months, up from 39 percent for loans modified in in 2008.

Short sales and deeds in lieu of foreclosure increased by 39 percent from the second to third quarter, to 17,400.

Through November, Fannie and Freddie guaranteed nearly 4 million loan refinancings, including 155,700 aimed at helping at-risk borrowers through the Home Affordable Refinance Program (HARP).


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