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Mortgage Modifications: Statistically Insignificant

Posted by Larry Doyle on October 29, 2009 4:16 PM |

How meaningful is the mortgage modification program? What have we gotten for the billions committed to this initiative? Are you sitting down?

For frame of reference, the U.S. Census Housing Data indicates there were 110.3 million occupied housing units in the country in 2007. Of that number, 68.1% were owner-occupied. Simple math tells us 75.1 million people owned their home at that point.

Various studies indicate that approximately one of every three homeowners are now ‘underwater’ (mortgage balance exceeds home value). Many analysts believe that number is headed higher. A Deutsche Bank analyst projects one of every two homeowners will ultimately be ‘underwater.’

Simple math indicates that approximately 25 million homeowners are underwater. What is being done to support these homeowners? Uncle Sam’s primary program to support this growing problem is the ‘mortgage modification’ program. This program is supposed to be driven by mortgage servicers. How is it working? Let’s navigate.

Recall that the funds targeted for this effort have come from the Troubled Asset Recovery Program (TARP). The General Accounting Office (GAO) recently published a Review of the TARP. This review is extensive, running 112 pages. On page 92, we get an overview of the Home Affordable Modification Program (HAMP). The report reads:

Most of Treasury’s efforts to develop HAMP have been directed to the first-lien modification program. Treasury has designed the first-lien program to target borrowers in default (defined as 60 days or more delinquent on their mortgage payments) or in imminent danger of default (borrowers that are current on their mortgages but facing hardships such as job loss or interest rate increases on their adjustable rate mortgages).
Treasury has established several eligibility requirements for borrower participation in HAMP, including that the property be an owner-occupied, single-family residence (one to four units) that is the borrower’s primary residence and that the mortgage loan amount not exceed specified dollar thresholds. Additionally, borrowers cannot participate in HAMP if they have non-GSE loans unless their servicers have signed participation agreements with Fannie Mae—Treasury’s administrator for the program. According to Treasury, as of September 25, 2009, the following HAMP progress has been made related to loans not owned or guaranteed by Fannie Mae and Freddie Mac:

Status of Efforts
• 63 servicers had signed participation agreements for the first-lien modification program;
• More than 1.3 million solicitation letters for HAMP loan modifications to borrowers;
• More than 328,000 HAMP trial modification offers to borrowers;
• More than 209,000 HAMP trial modifications had started;

. . . and of the 209,000 mortgage modifications (.3% of total homeowners) started in the country, how are we doing?

• 1,080 borrowers had successfully completed the trial period and received HAMP modifications.

Yep. A whopping 1,080 borrowers have successfully completed the trial period and received modifications. A full .5% of those modifications that had started. Yes, a full 1,080 homeowners. I am sure there are plenty of homeowners still in the trial period, but even 209,000 homeowners as a percentage of the overall housing market is hardly significant.

What have we learned about housing over the last few months? Servicers have little interest in this program. Homeowners who are more than 30 days past due also have little interest in this program. The number 1,080 is clear evidence of that and, in my opinion, renders the entire mortgage modification program statistically insignificant.


Related Sense on Cents Commentary

Uncle Sam’s New Mousetrap to Stem Foreclosures (October 13, 2009)

  • beth s

    that is interesting!

    • Larry Doyle

      Beth S….Truly amazing when you think of it. I thought I was missing something. I read and reread the description and info and then incorporated that the report was coming from the GAO so I trust the source.


  • TeakWoodKite

    Hurry up and wait financing. LD this money is on the balancesheet someswhere. I would think interviewing these people as to their experiences would add a great deal of color, as you like to say.

    It must be akin to winning the lottery, with these odds of getting it completed and still owning a home a rare feat of winning against the house.

    I wonder what the total dollar amount of the ‘under water’ is. Should it measured in fathoms?

    I might add that I am in this process, and it does feel like I am fishing with the wrong bait.

  • coe

    LD – This news is quite alarming and should be shouted from the rooftops. My impression is that the #1 “hot button” for congress and the administration regarding the mortgage mess is clearly the political currency derived by claiming that the country’s utmost priority is to keep mom and pop in their homes and modify, modify, modify…I also happen to agree with you and others that in many ways, true recovery is primarily hostage to two variables – unemployment and housing…pardon my cynicism, but it strikes me that notwithstanding the critical importance of getting things right, both Freddie and Fannie are still poking along, just trying to figure out what their respective missions are in their new conservatorship skins, their leadership is new to the scene (and at least in my opinion, somewhat underwhelming), and of course that also begs the question of the non-conforming market problems.

    Finally, I can’t tell you how many times I’ve heard people who are gratefully employed, working like mad to responsibly tackle their family obligations, including paying their mortgage, say how unfair things are for them…and that doesn’t even take into account any impending tax hikes or health care adjustments…

    Yet the equity market surges and many economists think the recovery is at hand – perhaps better stated as “sleight of hand”, no?

    There’s still much to be concerned about in my opinion, and the housing/mortgage market remains at the front of the line.

  • Dave H

    The HAMP program is very good as per the Directives for what it was designed for its the servicers implantation that is the problem.

    Desperate Home Owners Petition Congress For Help

    “We believe all servicers must do more to reach struggling homeowners faster,” Treasury spokeswoman Meg Reilly said.”

    Reaching is NOT THE ISSUE. It is easy to get on trials often going for 6 months instead of 3 in the HAMP directives. The issue is being able to get final modifications even if all the directives for getting them are followed.

    Most servicers, and Fannie and Freddie as investors are backlogged for many months since there is to much “reaching”
    going on to get more in the pipeline they can’t process. Its getting the modification approved that is the huge problem.

    If your denied often for reasons not part of the requirements they can foreclose and sell without notice immediately. That is even in the Trial Agreement Document.

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