Bucking the mortgage modification trends

Mortgage modifications are supposed to be a win-win situation. Homeowners lower their monthly payments and get to keep their homes. Mortgage lenders, minimize loss by allowing the homeowner to hold onto their property than they would if the property went into foreclosure. The community benefits because instead of an empty property, they have neighbors. According to a new report from the Boston Federal Reserve Bank, lenders aren’t buying it. At least one bank, First Federal Bank of California, is.

Just released figures for May 2009 indicate that First Federal Bank of California, a subsidiary of FirstFed Financial Corp., has modified nearly $1 billion worth of home mortgages enabling more than 2,000 California families to avoid foreclosure. Perhaps more significantly 81 percent of homeowners whose mortgage have been modified by the bank are current on their monthly payments.

“We got to borrowers ahead of time. We didn’t make them ruin their credit in order to get a workout,” explains Babette Heimbuch, Chairman and CEO of First Fed Financial. “As a community bank, we are committed to responding quickly to the needs of our customers. These mortgages are more than just loan numbers; they represent people.”

It isn’t just homeowners who are benefiting. First Federal Bank of California’s loan-modification program has reduced the bank’s risk profile – without the help of federal money. Acting early to convert many adjustable-rate loans into fixed-rate mortgages for up to 10 years and eliminating negative amortization provisions for modified loans, the bank significantly reduced the balance of loans that are scheduled to recast. They have reduced the number of potential foreclosures and the losses incurred in the foreclosure process.

First Federal Bank of California is a federally chartered savings association operating 39 retail banking offices in Southern California. Among the earliest loans modified, just 29.8 percent of mortgages modified by the bank were more than 30 days delinquent ninety days after modification, compared to a national rate of 63.3 percent reported in US News & World Report. Over time the loan modification program has been refined further reducing delinquencies to 15.6 percent six months after modification compared to the national rate of 59.5 percent. First Federal Bank of California has also outperformed the broader banking industry on 60-day and 90-day delinquency rates as well.

“We’re very proud of our success in helping borrowers to continue to afford their homes in these times of economic hardship,” says Heimbach. “We are working hard to complete the process of modifying our clients’ loans in continued service to our community.”