Report: Default Rate on HAMP Mods High

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The high re-default rate on mortgages modified through the government's Home Affordable Modification Program is mostly because of borrowers who received the smallest reduction in payments through the program, are still underwater on their loans, or have subprime credit scores, according to a new report by the Special Inspector General for the Troubled Asset Relief Program.

Of the nearly 1.2 million mortgages modified through HAMP in the last four years, 306,000 borrowers have re-defaulted on their loans, the report said. More than 88,000 more borrowers are at risk of re-defaulting, too.

The report also found that the longer a home owner stays in the HAMP modification program, the more likely they are to default. Borrowers who have been part of the program since 2009 have a re-defaulting rate of 46 percent.

HAMP helps borrowers by reducing the interest rate on at-risk mortgages, extending loan terms, or reducing mortgage principal. 

"Treasury needs to research why so many borrowers are dropping out of the program," says Christy Romero, the head of SIGTARP.

Source: “Borrowers in Obama housing program re-defaulting, watchdog says,” CNNMoney (July 24, 2013)

Despite Improvement in Loan-Mod Defaults, Report Raises Alarms

Sadly, loan modifications have not been very successful. Have you had your modification denied? Call me - Laura Key 310.866.8422

There are few defenders of the Obama administration’s signature loan-modification initiative, the Home Affordable Modification Program, or HAMP. But a new report released on Wednesday raised an interesting criticism of HAMP—that borrowers aren’t staying current on modified payments even though HAMP has reduced, on average, borrowers’ monthly payments by more than $400.

The report, from the special inspector general for the Troubled Asset Relief Program, or Sigtarp, said there was an “alarming rate” of homeowners who were defaulting after receiving a permanent mortgage modification.

The report says data show that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program. This is true of almost any mortgage-modification program.

But the report raises broader questions about whether mortgage modifications have been worth the costs, and against what yard stick success in any such program should be measured.

There are plenty of faults to find with HAMP. Officials struggled to ensure taxpayer money wasn’t wasted, so they required lots of documentation. That created new headaches: banks rejected borrowers that they said provided incomplete forms, while borrowers routinely complained that banks lost their paperwork. In an interview last year, Shaun Donovan, the housing secretary, said it was a “fair criticism that programs initially were too complicated and had too many restrictions.”

Mortgage servicers were also overwhelmed. During tense meetings at the Treasury Department throughout 2009 and 2010, officials laid into the banks for not staffing up. Executives groused that HAMP rules changed so often that they couldn’t keep up and that new headline-grabbing initiatives were announced before they could be rolled out to be offered to borrowers.

Others said HAMP didn’t do enough to deal with negative equity, which prompted the administration to launch a belated effort two years ago to encourage principal reduction. The Treasury never made it mandatory because they feared it would both be too expensive and that it would lead banks to opt out of HAMP.

Under HAMP, banks received modest incentive payments to reduce borrowers’ monthly payments to around 31% of their current income, often by extending the loan term and dropping the interest rate. Modifications have resulted in an average monthly payment reduction of $545 or $400, depending on which type of modification lenders provide under the program.

So far, around 860,000 borrowers have active HAMP modifications, and around 290,000 have fallen out of the program. The Sigtarp report said it was “alarming” that 46% of a few thousand permanent modifications made in the third quarter of 2009 had redefaulted, as well as 39% of those made in the last quarter of 2009.

But some industry executives have said that, for all its faults, HAMP succeeded in giving the industry a template for a more sustainable loan modification. Before 2009, many modifications didn’t result in lower monthly payments, and mortgage modifications in the post-HAMP world have performed drastically better than those that came before. Around 25% of borrowers who received a modification in 2011 had fallen behind on payments within one year, down from 57% in 2008, according to banking regulators.

Moreover, more recent HAMP modifications are performing significantly better than earlier HAMP “mods,” something that may be owed to an improving economy as much as any program improvements. Around 11% of HAMP modifications made in late 2011 had defaulted after one year, compared with more than 20% for those made when the program launched in mid-2009.

Data also show that HAMP modifications, which typically offer the most generous payment relief, perform better than privately issued modifications.

Among the bigger questions raised by the report: If mortgage modification redefault rates under HAMP are too high, what’s an acceptable level? And can any mortgage modification program hit those targets?

Source: Wall Street Journal

Short Sale Process Cut in Half or More, Freddie Mac Says

Short sales are getting much shorter, Freddie Mac says. The mortgage giant launched a Freddie Mac Standard Short Sale program on Nov. 1 that sought to speed up the short sale process and make it easier and more transparent. "We estimate that the time to complete a short sale will decrease by approximately 50 percent to 75 percent," as a result of the changes, writes Tracy Mooney, Freddie Mac’s EVP in a recent blog post.

Among the changes that took effect Nov. 1, 2012:

• Mortgage servicers have 30 days to make a decision on a short sale once they receive an application. If they need to negotiate with a third party, they have 30 additional days. A final decision on the short sale must be made within 60 days.
• Mortgage servicers are required to acknowledge they received the short sale application within three days of submission. Servicers must provide weekly status updates if they end up needing more time to review the application past the initial 30-day period.
• Mortgage servicers have authority now to approve short sales when qualifying financial hardships for home owners who are past due or current on their mortgage payments.
• Mortgage servicers are also now able to approve short sales without seeking a separate review by the mortgage insurance company.
• Following a short sale, home owners may be able to qualify for up to $3,000 in relocation assistance.

Source: “The Shorter Short Sale: Long on Borrower Benefits,” Freddie Mac Executive Perspectives Blog (Jan. 22, 2013)

Short sales better option for homeowners

MSNBC reports that the recent increase in short sales may be the relief that the housing market needs during its slow recovery. The number of short sales has increased by 26,000 this year following a jump in the number of foreclosures and short sales in 2010.

According to the source, short sales may also be a better option for homeowners when compared to foreclosures, especially for those who don't qualify for loan modification.

Homeowners who choose short sales can stay in their homes and start rebuilding their credit sooner than those who find themselves in foreclosure, says the source. FICO reports that the number of points homeowners lose is the same when foreclosing or selling the home for less than the amount owed on the mortgage, but those who opt for short sales will likely obtain a loan quicker, which will help improve their credit scores.

The source reports that some economists are concerned that the decrease in foreclosures may be a result of a built up amount of foreclosures that have not been processed.

"Foreclosures are going to be a drag on the market for a long period of time," Dean Baker of the Center for Economic and Policy Research told the source. "Until these distressed homes are resold and assimilated back into the market, real estate prices can't stabilize."

Source: Today's MLS Real Estate Dec. 30, 2011