Over half of rescued US borrowers default again on home loans

More than half of the homeowners whose mortgages were modified or rescheduled earlier this year ended up delinquent within six months, the Comptroller of the Currency John C Dugan said.

''After three months, nearly 36 per cent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 per cent, and after eight months, 58 per cent,'' the comptroller said.

Dugan was speaking at a panel discussion with OTS director John Reich, Federal Reserve Board vice chairman Donald Kohn, FDIC chairman Sheila Bair and Federal Housing Finance Agency director James Lockhart, at the Office of Thrift Supervision's National Housing Forum.

Dugan wondered whether the default numbers are going up ''because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers? Whether consumers replaced lower mortgage payments with increased credit card debt? Is it that the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments? Or is it a combination of these and other factors?''

That question ''has important ramifications for the foreclosure crisis and how policymakers should address loan modifications, as they surely will in the coming weeks and months,'' the comptroller added.

The second OCC and OTS Mortgage Metrics Report, to be published later this month, is also expected to show continued increasing delinquencies and foreclosures in process for all first-lien mortgages held by the largest national banks and federally-regulated thrifts.