Despite the difficult economy and high unemployment rates, the vast majority of homeowners who modified their mortgages under the Administration's Housing Affordable Modification Program (HAMP) are staying current on their payments, surprising experts and far exceeding previous modification efforts.
According to the Treasury Department, nearly three million borrowers have received restructured mortgages since April 2009, outpacing the 1.24 million foreclosure completions for the same period. Through June, 389,198 borrowers have received permanent modifications of their mortgages, which reduce monthly payments for a five year period to a level easier for borrowers to afford.
For borrowers who have had their mortgages modified 90 days months or longer, the percentage unable to make their payments is extraordinarily low. For permanent modifications, the redefault rate for loans 90 or more days delinquent is fewer than 2 percent at the time they are six months old. Fewer than 3 percent of homeowners in permanent modifications at nine months have defaulted on their HAMP-modified loans.
Redefault results on the HAMP program are still preliminary. Fewer than 5000 borrowers have been paying their permanently modified mortgages for more than 90 days, but results to date far exceed
By contrast, the Office of the Comptroller of the Currency (OCC) estimates the redefault rate of mortgages modified by the nation's 11 largest servicers – incorporating proprietary mod programs – at 57 percent.
Within six months of the launch of the Bush era program, at a time when the economy was in much better shape, Hope for Homeowners over half of all modified loans were 30 days or more delinquent and over a third were 60 days or more delinquent
Last month a Fitch Ratings report predicted that most borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months. Between 65 percent and 75 percent of loans that are modified through the Home Affordable Modification Program but not backed by the federal government are likely to go bad, according to the report.
"Many of these borrowers still have very heavy levels of other debt," said Diane Pendley, a Fitch managing director at the time. "Auto loans, credit cards and other expenses. The HAMP modifications reduce housing expenses down to 31 percent of income but do not touch these other obligations."
Unlike many previous efforts, HAMP modifications reduced principal as well as interests. HAMP also included a three month trial period where borrowers must make modified payments on time. To date, more borrowers have dropped out of the program during the trial period than have gone on to have their mortgages permanently modified.
