The Wall Street Journal is reporting two important conclusions based on data from the Office of Comptroller of the Currency and the Office of Thrift Supervision:

Seriously Delinquent Subprime Loans Rise from 10.75% to 16.4%

The report found that the number of seriously delinquent subprimes loans is on the rise. This means that more and more people are letting their mortgage payments go unpaid. This, of course, leads to lenders foreclosing on the properties, which leads to many unfortunate consequences: uprooted families with bad credit, as well as the potential for all types of property owners seeing the value of their property drop rapidly as more and more homes in their area become vacant.

10% Reductions in Monthly Mortgage Payments Reduces Late Payments

Not surprising...cutting mortgage payments significantly helps.

This news comes as the lenders are beginning to modify loans for people in danger of being foreclosed on. The lenders will be following the Obama administration’s guidelines that provide incentives to lenders if they can reduce the borrower’s mortgage payment to 31% of their income. The new data supports the administration’s claim that if the guidelines are followed, we will see fewer bankruptcies. The goal of reducing bankruptcies is key to their plan, so that the value of entire neighborhoods and areas of towns and cities does not drop substantially.

The report points out that many borrowers’ mortgages amount actually increase while working with their lenders to catch up on late payments. The lenders will often put the missed payments back into the loan, thereby increasing the monthly payments. The Obama plan attempts to help both the lenders and the borrowers break this cycle, keep the borrowers in the house and making their payments. When borrowers have fallen behind on their mortage payments, 50% of them will fall behind again within nine months if their payments remain the same or increase. The studies found that 26% will fall behind again if their mortgage rate is cut by at least 10%.

The percentage of delinquent mortgages that have had their monthly payments cut by more than 10% is on the increase. 37% of such loans had their payments reduced by 10% or more in the fourth quarter of 2008 compared to 26% in the third quarter. However the report found that 1 in 4 of modified loans actually had their payments remain the same or increase.