February 8, 2011 (Chris Moore)

Credit rating agency Fitch Ratings reported that mortgage servicers modified 36,500 mortgages through government and proprietary programs in December 2010, down 57% from the peak of 86,500 in April 2009. Fitch also stated that based on current and expected inventory, it will take four years to remove the backlog of properties and return the market to balance, echoing a similar statement made by Standard & Poor last week.

While efforts by both Hope Now and HAMP resulted in about 1.75 million modifications in 2010, Fitch’s report claims the amount of modifications has been on the decline each month since the April 2009 peak.

And yet despite the efforts by both Hope Now and HAMP, foreclosure sales still exceeded the one million mark with that number expected to increase in 2011.

Adding to the misery, Fitch is also projecting that between 60 percent and 70 percent of sub-prime loans modified will re-default within a year. Prime loans won’t fare much better. More than half of these mortgages are expected to re-default in one year after modification as well.

“The combined efforts of HAMP and other mortgage loan modification programs have made little more than a dent in the large volume of outstanding distressed loans,” said Diane Pendley, Head of U.S. RMBS Operational Risk, in a release.

But the amount of short sales and deeds in lieu of foreclosure could be on the rise. Fitch looked into the amount of loans that were liquidated as of December 2010 and found that 53 percent of prime loans, 34 percent of Alt-A and 32 percent of sub-prime sales were conducted before reaching the REO, or repossessed stage.

Less loan modifications, increased existing mortgage loan modification default rates, and an expected record year in foreclosures makes us wonder if four years is long enough.

Tags: mortgage servicers, mortgage loans, fitch ratings, mortgages, distressed properties, loan modifications, hamp, hope now, short sales, reo