Fewer Catching Up on Lapsed Mortgages

Homeowners who fall behind on their mortgage payments have become much less likely to catch up again, new study shows. The report from Fitch Ratings Ltd., credit-rating firm, focuses on a dive in the cure rate for mortgages that were packaged in securities. The study excludes loans guaranteed by gov-backed agencies as well as those that weren't bundled into securities. The cure rate is the portion of delinquent loans that return to current payment status each month. Fitch found cure rate for prime loans slid to 6.6% as of July from an average of 45% for the years 2000 thru 06. For so-called Alt-A loans -- a category between prime & subprime that typically involves borrowers who don't fully document their income or assets -- cure rate's fell to 4.3% from 30.2%. In the subprime category, the rate's declined to 5.3% from 19.4%. "The cure rates really collapsed," said Roelof Slump, Mng. dir at Fitch. Because borrowers are less willing or able to catch up on payments, foreclosures will likely remain a big problem. Barclays Capital projects the number of foreclosed homes for sale will peak at 1.15M in mid-10, up from an estimated 688,000 as of July 1. Cure rates sunk despite the Obama adm's prodding of banks to ease terms for millions of borrowers to try to prevent foreclosures. Without the loan-modification effort, cure rates would be even lower. Job losses left some borrowers unable to make payments. In addition, he said, some who could continue to make payments probably are no longer willing to. That may be because values of their homes fell below their loan balances & they see little hope of ever recovering the investments. What's more, due to widespread backlog & delays in the foreclosure process, people who quit paying may be able to stay in homes for over a year before eviction. The Fitch study covers $1.7T of mortgages held in securities, reping about 16% of U.S. mortgages outstanding.