U.S. Mortgage-Relief Plan Has Fewer Delinquencies Amid Bigger Reductions
Mortgages modified through the main federal relief program fell into delinquency at about half the rate as those in other plans because the government provides bigger payment reductions, according to U.S. bank regulators.
Thirteen percent of loans modified through the Home Affordable Modification Program in the first half of last year were 60 days delinquent after six months, compared with 24 percent of loans in alternative programs, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. After nine months, the re-default rate was 17 percent under the Obama administration’s plan, compared with 32 percent under others offered mostly by banks.
“The re-default rates on these HAMP mods are encouraging,” Joe Evers, deputy comptroller for large bank supervision at the comptroller of the currency’s office, said in a conference call today. “If you ask some of these homeowners who got HAMP mods, I think they’d say that it is working.”
Policy makers are debating the best ways to reduce foreclosures and fix the housing market after a five-year decline in prices has left about one in four homeowners with loans bigger than the value of their properties. The House of Representatives voted 252-170 on March 28 to eliminate the HAMP program, which pays banks and mortgage servicers to modify monthly payments for delinquent borrowers.
Neil Barofsky, special inspector general for the Troubled Asset Relief Program, has called HAMP “a failure,” and said it pales in comparison to the record 2.9 million foreclosure filings in 2010.
About 608,000 homeowners started permanent loan modifications under the administration’s program as of Jan. 31, up from 117,000 a year earlier, the Treasury Department reported March 2. Borrowers on about 2 million home loans received modifications through proprietary programs by banks and loan servicers.
During the fourth quarter, HAMP modifications reduced monthly payments by an average $587, or 35.9 percent, compared with reductions of $351, or 22 percent, from other programs, according to today’s report.
About half of all trial modifications extended through HAMP are canceled, a failure rate that isn’t counted in the regulators’ report, said Bryan Hubbard, a spokesman for the comptroller of the currency’s office in Washington. Many borrowers canceled by HAMP’s trial program later get proprietary modifications, contributing to a higher failure rate, he said.
“The riskier borrowers who don’t qualify for HAMP get these other modifications,” Hubbard said on the conference call. “Therefore they have inherently more risk associated with them.”
The number of completed foreclosures decreased almost 50 percent in the fourth quarter to 95,067, as lenders and servicers put a moratorium on actions after accusations they used improper procedures, such as “robo-signing” documents, to seize delinquent properties, the Treasury Department reported.
“New and completed foreclosures are likely to increase in upcoming quarters as moratoria are lifted and the large inventory of seriously delinquent loans and loans in process of foreclosure work through the system,” the report said.
State attorneys general and federal authorities including the Justice and Treasury departments early this month sent a list of terms to the five largest U.S. mortgage servicers as a starting point for negotiations to settle allegations of abusive foreclosure practices. The proposals cover almost every aspect of servicing, from training employees to developing a single point of contact for borrowers seeking loan modifications.
Loan servicers started more than 473,415 home retention actions, such as loan modifications, compared with 146,132 forfeiture actions, such as foreclosures and short sales, the report said.
The inventory of foreclosures in process increased by more than 7 percent to 1.29 million, or 3.9 percent of all serviced loans at the end of the fourth quarter, the report said.
The report is based on information from 32.9 million first mortgages with $5.7 trillion in principal balances, or about 63 percent of outstanding loans as of December. The offices of Thrift Supervision and Comptroller of the Currency are divisions of the U.S. Treasury Department.
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