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Obama Administration Ready to Admit Failure of Mortgage Modification Program

Posted by Larry Doyle on December 8, 2009 11:19 AM |

Throwing good money after bad is not a practice that generates long term success and prosperity. In fact, the unintended consequences and costs of dysfunctional government programs should never be discounted. While intentions of certain programs may be noble, the practicality of Uncle Sam’s attempt to manipulate a market is not easily achieved. I am writing about the results of the Obama administration’s mortgage modification program.

I highlighted the state of this program in October in writing, “Mortgage Modifications: Statistically Insignificant”:

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.

Today we learn the Obama administration will release details later this week indicating that 6% of those mortgages in the modification process have now or will ultimately be successfully and permanently modified.

The American Banker provides insights on this story in writing, Dismal Results for Trial Loan Mods:

Only 6% of trial modifications have become permanent or are likely to become permanent under the Obama administration’s foreclosure program, according to data the Treasury Department plans to release on Thursday.

On Monday, Treasury officials gave servicers in its Making Home Affordable Program a preview of the data. The poor results come a day before the administration and servicers were to testify before the House Financial Services Committee on the modification program.

According to the data, 11% of trial modifications that were extended have been canceled; 49% lack some or all of the necessary documents to convert them to permanent loans; 33% have the required documentation but have not been converted, and 6% are currently slated for conversion.

Under the administration’s modification program, servicers must complete three months of trial modifications where the loan was reduced to 31% of the debt-to-income ratio before a workout is made permanent. On Thursday, the Treasury will for the first time officially announce how many of those loans have become permanent. So far 650,000 trial modifications have been extended.

Servicers were allowed to accept verbal documentation of income and expenses but the borrower must provide verifying documentation before a loan can become permanent.

Well, 6% may be a lot better than .5% but a 6% success rate is hardly significant.

What are the implications of these results? Do not expect mortgage delinquencies, defaults, and foreclosures to peak anytime soon despite assertions or expectations to the contrary.


  • TeakWoodKite

    LD, still pondering what a person with your experience and insight meant by “suspisious”.
    I heard BO say “we need to spend our way out of this…”

    Yet, not so long ago I recall hearing “We can’t spend our way out of this”, from the Dems.

    Is that the best we can do? yikes!

  • Larry Doyle


    Not sure what you mean or where “suspicious” comes from?

    In regard to your second point, statements such as those do not exactly inspire confidence. Polls reflect that lack of confidence and support for Obama and team, especially Geithner.

  • Bill George

    Early-on in the Obam appointment cycle I heard the opinion that because Geithner lived and worked in Japan during the “Lost Decade” he might understand the dangers of government intervention supporting unrealistic asset prices for too long. In the same commentary a comparison was made to the Japanese Lost Decade and the more rapid Russian asset revaluation. In your opinion, is there a middle ground that can accomplish a good result. I’m leaning toward Joseph Scrumpeter. (Search WSJ Geithner Speed is Key To Recovery – 2/04/09)

  • Larry Doyle


    I could not access the article, try as I might.

    There were largely two choices, the Swedish style and Japanese. The Swedish approach is to create a bad bank resolution and liquidate positions as quickly as possible. Massive pain, but quicker rebound. The Japanese approach was to minimize the pain but to prolong it.

    The fact that the banks are awash with dough and readying to pay hundreds of billions in bonuses while trillions in losses still exist and credit remains anemic is an indication to me that not enough pain was absorbed.

    What does it take? Stronger leadership willing to stand up to the banks.

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