Households that are at least 90 days delinquent on their mortgage payment now number at least 1.6 million, according to a report Thursday issued by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
Though more people are in worse trouble, the good news is that fewer households are entering delinquency. The number of people who were only one payment behind actually dropped in the quarter by 16,000.
One reason for the ballooning number of seriously delinquent borrowers is that foreclosure, for better or worse, is becoming an increasingly lengthy process. Many delinquent borrowers are in trial modifications, which keeps the final stages of foreclosure at bay.
The number of foreclosures completed in the fourth quarter rose 9 percent, to 128,859. Another 38,000 owners disposed of their house in a short sale, where the lender agrees to accept less than it is owed.
Starting this month, the Treasury Department is promoting new rules to facilitate short sales. Borrowers who are trying to sell their house in a short sale can also put off the endgame for many months.
Both lenders and the Treasury are under pressure to save many of the homeowners now in foreclosure limbo. Bank of America, the country’s biggest bank, announced this week that it would forgive principal balances over a period of years on an initial 45,000 troubled loans.
Lenders began offering principal forgiveness last year on loans they held in their own portfolios. In the fourth quarter, however, this process abruptly reversed itself. The number of modifications that included principal reduction fell by half.
The Treasury is expected to announce soon adjustments to its mortgage modification plan that will do more to promote principal forgiveness. On Thursday, it detailed smaller changes to improve the program. Loan servicers are now required to pre-emptively reach out to borrowers who have missed two payments and solicit them for a modification.
The quarterly regulators’ report is one of the broadest surveys of loan performance, covering 34 million first-lien loans. It shows about 4.6 million borrowers qualify as distressed, ranging from only one payment behind to those within days of being evicted by the sheriff.
Since the report only covers about two-thirds of American mortgage loans — and the higher quality loans at that — the actual number of the distressed is about seven million households.