HAMP: Largest Payment Reductions Produce Best Loan Performance

by devteam February 4th, 2011 | Share

The U.S.rnDepartments of Treasury and Housing and Urban Development (HUD) have jointly issuedrnthe January Housing Scorecard.  The Scorecard is a round-up of most nationalrnhousing data including reports for the Census Department, National Associationrnof Realtors® (NAR), S&P/Case-Shiller, etc., all of which has been published on MND already. </p

The focus of the HousingrnScorecard this month is the Making Home Affordable Programrn(HAMP), the joint Treasury/HUD initiative to modify delinquent mortgages andrnprevent foreclosures.  Despite severalrnefforts to retrench and modify the program, it has received criticism fromrnCongress, borrowers, and consumer groups for its failure to move borrowers fromrnthe required three month trial modification program into permanent loanrnmodifications.</p

Since the program began in April 2009,rn1,466,000 distressed borrowers have entered into trials with their respectivernservicing companies.  This is an increasernof 29,000 since November and represents about half of the delinquent loans thatrnare estimated to be eligible for the program. rn</p

As of the end of December approximately 580,000 borrowers had convertedrntheir temporary modifications into permanent ones, up 30,030 from November. Conversionsrnhave averaged 30,000 per month over the last six months of HAMP data.  Servicers have picked up the pace of clearingrnout aged trials; at the end of November 39,800 loans had lingered in trialrnmodification status for six months or more, down from 69,900 the previousrnmonth. Over the course of the program 734,509 trial modifications have beenrncancelled as have 58,020 that had reached permanent status.  </p

Asrnpermanent modifications age some data on the success of the program arernbeginning to emerge, but it is too early to draw many conclusions about re-defaults. At least three months worth of data existsrnfor all loans that had been modified through the end of Q3 2010 and, of thosern4.7 percent had already fallen into the 60+ day delinquent category and 1.4rnpercent were 90+ days delinquent.  Early performancernnumbers, however, appear to have been improving as the program ages.</p

The first modifications, made permanent in Q3rnof 2009 were 9.8 percent and 3.5 percent delinquent 60+ and 90+ days afterrnconversion.  The delinquency rates forrnloans 6 months into permanent status also show improvement across the life ofrnthe program.  The 60+ and 90+ day raternfor loans originated in Q3 was 14.9 percent and 9.8 percent respectively; thisrnimproved to 11.8 percent and 7.0 percent for loans originated in Q2 2010, thernlast quarter for which this information is available.  All loans in permanent status for at least arnyear, a total of 57,051, have a 60+ day re-default rate of 20.5 percent and arn90+ rate of 15.8 percent.</p

Thernprogram’s success rate also appears to improve where modifications are morernaggressive.  Modifications that decreasedrnthe monthly principal and interest payments by 30 percent or more performedrnmore than twice as well across all time periods than those that decreasedrnpayments by less than 20 percent.  Forrnexample, 12 months or more after modification, those loans with less than a 20rnpercent drop in payment had a 90+ day re-default rate of 26.2 percent; forrnloans with a 20 to 30 percent decrease it was 19.5 percent, and for those loansrnwith payment modifications over 30 percent it was 12 percent.   </p

Inrnconjunction with the HAMP Report, the two agencies also released preliminaryrnanalysis of data from the Making Home Affordable (MHA) Data File which includesrncharacteristics of HAMP program participants. The MHA Data File offers mortgagernloan-level data and is intended to allow for better understanding of the impactrnof the program.</p

 Key findings that emerged from a preliminaryrnanalysis of the MHA Data File include:</p<ul class="unIndentedList"<liTo date, most program participants are moderaternand middle income, financially-distressed homeowners who arern"underwater" on their mortgages.</li<liBorrowers in active permanent HAMP modificationsrnhave a median annual income of approximately $46,000; a median credit score ofrn570 upon entering the trial period; a post-modification loan balance of justrnover $232,000 and a median mark-to-market loan-to-value (LTV) of 118 percent.</li<liWhere borrowers reported race and ethnicity,rnAfrican-Americans account for 18 percent of active permanentrnmodifications and Hispanics account for 26 percent. </li<liHomeowners in active permanent modificationsrnhave seen their monthly mortgage payment cut by a median of approximately 40rnpercent. Eighteen percent of homeowners in active permanent modifications havernreduced their monthly mortgage payment by more than $1,000 each month. </li</ul

ThernHousing Scorecard reports that public and private foreclosure preventionrnprograms including HAMP have started 4.1 million modifications arrangementsrnsince April 2009, more than twice the number of actual foreclosures completedrnin the same period.  In addition to thern1.4 million HAMP actions there were 650,000 FHA modifications and interventionsrnand nearly 2 million proprietary modifications under the government/privaternsector HOPE Now program.</p

“Over the last 20 months, the Obama Administration hasrnconfronted the nation’s housing crisis with an unprecedented effort to promoternstability in the market – keeping millions of families in their homes andrnhelping millions more to save money by refinancing. But the data clearly showrnthat the market remains extremely fragile,” said HUD Assistant SecretaryrnRaphael Bostic. “We know that many responsible homeowners are still fighting tornmake ends meet. That’s why we’re committed to continuing to provide help tornhomeowners by implementing the broad range of programs the Obama Administrationrnhas put in place.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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