Fewer Catching Up on Lapsed Mortgages

By JAMES R. HAGERTY
Homeowners who fall behind on their mortgage payments have become much
less likely to catch up again, a new study shows.

The report from Fitch Ratings Ltd., a credit-rating firm, focuses on a
plunge in the "cure rate" for mortgages that were packaged into
securities. The study excludes loans guaranteed by government-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 that the cure rate for prime loans dropped to 6.6% as of
July from an average of 45% for the years 2000 through 2006. For so-
called Alt-A loans -- a category between prime and subprime that
typically involves borrowers who don't fully document their income or
assets -- the cure rate has fallen to 4.3% from 30.2%. In the subprime
category, the rate has declined to 5.3% from 19.4%.

"The cure rates have really collapsed," said Roelof Slump, a managing
director at Fitch.

Because borrowers are less willing or able to catch up on payments,
foreclosures are likely to remain a big problem. Barclays Capital
projects the number of foreclosed homes for sale will peak at 1.15
million in mid-2010, up from an estimated 688,000 as of July 1.

Cure rates have sunk despite the Obama administration's prodding of
banks to ease terms for millions of borrowers to try to prevent
foreclosures. Without those loan-modification efforts, cure rates
would be even lower.

Job losses have left some borrowers unable to make payments. In
addition, Mr. Slump said, some who could continue to make payments
probably are no longer willing to. That may be because the values of
their homes have fallen below their loan balances and they see little
hope of ever recovering their investments.

What's more, because of widespread backlogs and delays in the
foreclosure process, people who quit paying may be able to stay in
their homes for more than a year before being evicted.

The Fitch study covers about $1.7 trillion of mortgages held in
securities, representing about 16% of U.S. mortgages outstanding.

Write to James R. Hagerty at bob.hage...@wsj.com

Printed in The Wall Street Journal, page A2
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

This copy is for your personal, non-commercial use only. Distribution
and use of this material are governed by our Subscriber Agreement and
by copyright law. For non-personal use or to order multiple copies,
please contact Dow Jones Reprints at 1-800-843-0008 or visit