In February, Fannie Mae completed 14,308 loan modifications. For the entire year of 2011, Fannie Mae averaged 16,070 completed loan modifications per month. The monthly delinquency rate for single-family homes in Fannie Mae’s mortgage portfolio declined to 3.67% from 3.82% the previous month. The last time Fannie Mae’s delinquency rate was that low was in May of 2009.

A year ago, Fannie Mae’s delinquency rate was 4.27% and has declined or remained unchanged from the previous month since March of 2010. Delinquency rates for multi-family dwellings declined to 0.37% in March from 0.43% in February, the fourth consecutive month that the delinquency rate has fallen. The delinquency rate for multi-family dwellings in March of 2011 was 0.64%.

Single-family delinquencies are based on the number of mortgages 90 days or more delinquent or in foreclosure as of period end while multifamily delinquencies are based on the unpaid principal balance of mortgages 60 days or more delinquent or in foreclosure as of period end.

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The report also includes statistics citing an additional 3 million children of families who are at risk of foreclosure, as well as 3 million who are relocated due to rental evictions. While foreclosure and relocation can impact children in many different ways, Isaacs specifically addresses the top four:

1. Frequent moves impact a child’s grades and school success
2. A diminished parent-child relationship due to financial stress
3. A correlation between increased doctor and emergency room visits and foreclosure rates
4. There is increased crime in areas with foreclosed homes, and a loss of community and social services due to declining tax dollars.

Foreclosures result in relocation, often necessitating a change in schools. Not only do children who change schools need to adjust to a change in housing, but they also need to make new friends. As the report reveals, these children also rank lower in math and reading assessment tests and have a higher likelihood to drop out of school.

The rise in doctor and emergency room visits by children in areas suffering high foreclosure rates indicates a link between their physical and emotional health and their family’s instability, either from financial stress, job loss, or distress due to relocation.

Isaacs states that the highest rate of impacted children was seen in Nevada, which not surprisingly, is among the top states in foreclosures, followed by Florida, Arizona, California, and Michigan.

To address the negative impact of foreclosure among children, the Brookings Institution report supports increased loan modifications to keep families in their homes and reductions in mortgage principals. They also recommend revisions to the servicing standards for mortgages and an amendment that would give bankruptcy judges the ability to modify mortgages.

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About 70% of the nearly 448,000 US homeowners who received mortgage help from lenders during the first nine months of 2011 are still up to date on their mortgages, according to the report by the federal Office of the Comptroller of the Currency. That compares with an on-time payment rate of 37% for homeowners who received loan modifications in 2009, according to the report.

The improving success rate for modifications comes as banks are under mounting pressure from federal and state officials to offer real relief to borrowers in danger of losing their homes. Although lenders prefer not to make any loan concessions, they also are increasingly interested in avoiding more foreclosures, which have hurt their profits in recent years.

Bryan Hubbard, spokesman for the Office of the Comptroller, said the rate of on-time payments has steadily improved as banks, pushed by regulators, have become agreeable to providing assistance that is more substantive than symbolic. Today, Hubbard said many modifications ‘‘significantly reduce monthly principal and payments.’’

Some local nonprofits say lenders have become even more willing to rework loans since a $25 billion multi-state settlement was reached earlier this year between attorneys general and five majorUSbanks over accusations of sloppy and fraudulent mortgage practices.

Paul Willen, senior economist for the Federal Reserve Bank ofBoston, said the growing success of loan modifications is a sign of an improving economy. ‘‘The good news is that the foreclosure crisis is ebbing,’’ he said. A few years ago, with the US unemployment rate at 10 percent, loan modifications often proved to be a temporary fix, he said. The modest payment reductions offered by lenders then were not enough to keep out-of-work property owners from ultimately defaulting.

The report emphasizes that the success rate of loan modifications improves with heftier financial help. Homeowners who received loan modifications in the last quarter of 2011 received an average payment reduction of $430 – a 26% cut in their monthly payment – compared with $379 during the same quarter in 2010, according to the federal study. Of 2,168 Massachusetts homeowners who received mortgage assistance during the last quarter of 2011, almost 60% have payments that are at least 20% lower, the study said.

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Using a three month rolling average, a total of 44,459 homeowners received permanent, in house loan modifications in February. This is down 20.3% from the 55,775 loan modifications in January. Of the in house loan modifications completed, 82% included reduced monthly principal and interest payments, with 75% receiving a reduction of more than 10%. In addition, 90% of the loan modifications received fixed interest rate loans of five years or more.

Faith Schwartz, Executive Director of HOPE NOW, stated, “There are many moving parts in the foreclosure prevention process and we anticipate that one month will not define any significant trends. However, one of our key data points showed that we saw a decline in the total number of serious delinquencies – loans that are 60 or more days past due – for February. HOPE NOW, and its member organizations, continues to work hard on behalf of at-risk homeowners through many different channels. Foreclosure prevention solutions continue to evolve as there are now several options available to borrowers through government programs and as well as private industry ones.”

This could very well be a result of borrower hesitance and servicer preoccupation as new programs are being created as a result of the landmark $26 billion mortgage settlement. Delinquent borrowers may be less likely to apply for temporary interest rate reductions or forbearance plans with the prospects of full refinances and principal reductions on the horizon. Even Fannie Mae and Freddie Mac, whose chief overseer is notoriously against principal reductions, are now said to be exploring the idea further. Hopefully for the 11 million underwater homeowners, the lower numbers are a sign that servicers’ attention is being focused on the development of these new programs.

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The financial stability of Fannie Mae and Freddie Mac will not be harmed if they engage in principal forgiveness and according to new data could save close to $1.7 billion. We will soon see the results of the country’s largest banks implementing principal loan reduction as required under the recent Multi-state Servicing Settlement. It is now time for the FHFA to accept the fact that principal forgiveness programs help borrowers, help communities and can improve the creditors’ bottom line.

- Massachusetts Attorney General, Martha Coakley

In the letter, the attorneys general argue that the increase of incentive payments to investors for allowing forgiveness under the Home Affordable Modification Program (HAMP) should also reduce concerns regarding the potential impact on the financial stability of Fannie Mae and Freddie Mac as either owner or guarantor of these loans. The Attorneys General write, “More than five million people have lost their homes due to foreclosure in the past five years, with millions more on the brink of foreclosure. Effectively resolving this foreclosure crisis is a key to restoring a healthy economy for our entire country. Because Fannie Mae and Freddie Mac own a majority of the nation’s home loans, they must be a leader in the arena of loan modification best practices, and not an obstruction.”

The FHFA has formally acknowledged that principal forgiveness can serve the long-term interests of taxpayers when compared to foreclosure by combining the goal of asset preservation and foreclosure prevention. According to Director DeMarco’s recent remarks to the Brookings Institution, an initial analysis of new incentives from the Treasury Department by the FHFA shows that Fannie Mae and Freddie Mac could save $1.7 billion if they applied principal forgiveness in its modification programs.

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Wells also provided details behind the numbers. The San Francisco bank successfully encouraged 80 percent of customers who are 60 days or more behind on their payments to work with the company and has been able to help approximately seven of every 10 of those customers avoid foreclosure. More than 92% of Wells Fargo’s home loan customers were current on their mortgage payments as of the fourth quarter of 2011 according to the bank. Also, fewer than 2 percent of the loans on owner-occupied properties in its mortgage servicing portfolio resulted in a foreclosure sale over the past 12 months. Wells says it’s helped nearly 5.6 million customers secure new low-rate loans for home purchases or refinances between January 2009 and February 2012.

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Federal Housing Finance Agency Director, Edward DeMarco, has continually blocked Fannie and Freddie from reducing principal, saying it would drive up the cost of a taxpayer bailout that has already topped $150 billion. Now the FHFA, under heavy pressure from Democrats in the U.S. Congress to change its position, is finally considering financial incentives offered by the White House to help offset any increased costs Fannie Mae and Freddie Mac might face if they wrote off debt on homes that have lost value. The U.S. Treasury Department’s financial bailout would be applied to those costs, and the loan forgiveness would be carried out under the administration’s signature Home Affordable Mortgage Program.

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The incongruent nature of those four cities reminds us that it is feasible to lose big on housing in hastily growing cities, such as Atlanta and Las Vegas, and in declining cities, such as Cleveland and Detroit.

About the existing market, the best that can be said is that it offers abundant affordability and the majority of economic recovery doesn’t depend on a big housing rebound.

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Mortgage Bankers Association economist Michael Fratantoni stated,” Remarkably low rates are not enough.” There were many prospective buyers who simply didn’t have the equity in their home, compounded with poor credit, or battling the faulty economy.

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This method concurrently drives down mortgage rates on definite loans and permits lenders to back them with negligible capitol. This spurs on a formula for bubbles and bailouts – where banks and other establishments hold more mortgage securities than would generally be permissible.

While the 30-year mortgage has a place in the U.S. housing market, it’s unclear why we should continue funding a product with this kind of history.

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