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10 HOW ARE RESIDENTIAL MORTGAGES PERFORMING AT THE LARGEST BANKS? Improving overall performance of first-lien mortgages means fewer delinquencies, and fewer delinquencies in turn means a declining need for loss mitigation, according to the Office of the Comptroller of the Currency (OCC)'s Mortgage Metrics Report for the ird Quarter of 2015. According to the OCC, 93.9 percent of outstanding residential mortgages serviced by eight national banks (Bank of America, JPMorgan Chase, Citibank, HSBC, OneWest Bank, PNC, U.S. Bank, and Wells Fargo) were current and performing as of the end of Q 3 2015—an improvement of nearly a full percentage point from the previous quarter a year ago, when 93.0 percent of mortgages for the eight banks were reported to be current and performing. e 93.9 percent of performing mortgages computes to approximately 20.5 million of the 21.8 million mortgages covered in the portfolio. A larger share of current and performing first-lien mortgages has corresponded with a smaller share of the "negative" mortgage metrics such as serious delinquencies, foreclosure starts and foreclosure inventory, according to the OCC. Serious delinquencies, which are defined as 60 or more days overdue or held bankrupt by borrowers whose payments are 30 or more days overdue, comprised about 2.6 percent of the portfolio (about 172,000 mortgages) as of the end of Q 3, which is a 16 percent drop from the end of Q 3 2014. e number of new foreclosures initiated declined year-over-year in the third quarter of 2015, from 83,000 to about 64,000, while the number of homes in the process of foreclosure declined by nearly one-quarter (23.8 percent) down to about 270,000 homes. is number represented about 1.2 percent of mortgages in the portfolio; according to the OCC, "Improved economic conditions and foreclosure prevention assistance contributed to the decline in foreclosure activity." e need for loss mitigation services has declined as mortgage performances have improved, according to the OCC's report. In the third quarter of 2015, servicers implemented 147,543 home retention actions, which was about 28 percent fewer than a year earlier. ose actions included modifications, trial- period plans, and shorter-term payment plans, and nearly 88 percent of the home retention actions implemented during the quarter reduced the borrower's monthly principal and interest payments. According to the OCC, borrowers reduced their monthly payment by an average of $243 with home retention actions implemented during Q 3; more than half of those actions (53 percent) resulted in a payment reduction of more than 20 percent. Out of the 3.8 million modifications servicers implemented from Jan. 1, 2008, to June 30, 2015, covered in the portfolio, about half (51 percent, or 1.92 million) were active as of the end of Q 3 2015, according to the OCC. e remaining 49 percent exited the portfolio through a variety of means—payment in full, involuntary liquidation, or transferring to a non-reporting servicer. Out of those 1.92 million modifications as of the end of Q 3 2015, 71.2 percent were current and performing; 23.6 percent were delinquent; and 5.2 percent were in the process of foreclosure. e OCC's report covers the performances of 21.8 million outstanding mortgages nationwide, which computes to about 42 percent of all residential mortgages through Sept. 30, 2015. e mortgages in the portfolio cover about $3.7 trillion in principal balances RISING HOME EQUITY GIVES HOUSING MARKET A LIFT While many factors contribute to the overall health of the housing market and economy, home equity is providing a major boost to the overall position of U.S. households. A recent report from the Financial Ac- counts of U.S.and analysis from the National Association of Home Builders (NAHB) found that household holdings of real estate reached $21.826 trillion in the third quarter of 2015, up $1.365 trillion from $20 trillion from last year. In addition, the reports showed that home mortgage debt outstanding totaled $9.460 tril- lion in the third quarter of 2015, up $78.0 billion from last year during the same time. e government report also found that mort- gage debt increased 1.6 percent at an annual rate. e NAHB analysis concluded that because household-held real estate grew at a much faster pace than the total amount of mortgage debt outstanding, home equity among consumer grew. According to the Financial Accounts of the U.S., home equity totaled 12.366 trillion in the third quarter of 2015, up 11.6 percent year-over- year, and is now 56.7 percent of household real estate. e amount of underwater mortgages in the U.S. continues to decline, but is not fully helping the housing market on the road to re- covery, particularity in many large markets that were heavily impacted during crisis times. e negative equity rate nationwide fell in the third quarter to 13.4 percent of underwater borrowers, down from last quarter's percentage of 14.4. One year ago, 16.9 percent of home- owners owed more on their home than it's worth, Zillow's Negative Equity Report showed. "Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide," said Dr. Svenja Gudell, Zillow's Chief Economist. She added, "Despite steady declines in negative equity, many cities are still facing tight inventory, especially among entry-level homes. ose homes that are available are often not in demand and stay on the market for a long time. is can be extremely frustrating for buyers and sellers alike, as they come face to face with the difficult side effects of negative equity." REO properties accounted for 6.4 percent of all residential home sales in September 2015, the lowest level since October 2007, according to CoreLogic. KNOW THIS

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