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One in Five Mortgages Default Again After Modification

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Jan. 31 (Bloomberg) -- One in five U.S. homeowners whose loans were modified under a federal government program to help reduce foreclosures were at least 60 days late in their payments a year after their mortgages were reworked.

The re-default rate for the Making Home Affordable Program averaged 20.4 percent after 12 months, 15.9 percent after nine months, 10.7 percent after six months and 4.6 percent after three months, according to a report released today by the Treasury Department.

The program has been criticized by housing advocates, lawmakers and watchdog groups. The number of active, permanent modifications reached 521,630 as of Dec. 31 under the program, which originally was intended to help 3 million to 4 million homeowners save their properties from being seized by lenders.

“While we cannot prevent every foreclosure, it is important to remember that these programs have helped to create more options for affordable and sustainable assistance than have ever been available before,” Tim Massad, acting assistant Treasury secretary for financial stability, said in a statement today.

In a Jan. 25 report, Neil Barofsky, special inspector general for the Troubled Asset Relief Program, or TARP, called the loan-modification program “anemic” and “remarkably discouraging.” He said permanent loan modifications “pale in comparison” to foreclosure filings. A record 2.87 million properties received notices of default, auction or repossession in 2010, according to RealtyTrac Inc., an Irvine, California-based real estate data company.

Ninety Days Late

After one year, 15.8 percent of permanent modifications are at least 90 days late in the Treasury program, the department said today. That compares with a 29.8 percent rate after one year for all loan modifications tracked by the Treasury, according to a Dec. 29 report. Those loans, including ones modified by private institutions, were reworked in the third quarter of 2009.

In December, 30,030 homeowners newly qualified for permanent modifications that reduce home payments to 31 percent of gross income, the department said today. A total of 58,020 permanent loan modifications have been canceled since 2009.

For the first time, the Treasury Department today released demographic information about borrowers who received loan modifications.

Median Income

The median gross annual income for a homeowner with a permanent modification was $46,196, according to Treasury data. The median credit score was 570 upon entering the trial period. The Federal Housing Administration requires at least a 580 FICO score to qualify for its loans with a minimum down payment of 3.5 percent. The largest lenders usually require scores above 620 to qualify for FHA loans.

The median loan balance was just over $232,196 after a modification and the median mark-to-market loan-to-value was 118 percent, meaning most homeowners had negative equity or were “underwater.” The median monthly payment reduction was more than $520 or about 40 percent.

Of borrowers who reported their race or ethnicity, whites accounted for 49 percent of active permanent modifications, Hispanics 26 percent, blacks 18 percent and Asians 4.6 percent.

The Los Angeles metropolitan area had 6.9 percent of borrowers with modifications, followed by New York with 6.1 percent, Southern California’s Riverside-San Bernardino area with 5.4 percent, Chicago with 5.3 percent and Miami-Fort Lauderdale, Florida, with 4.6 percent, according to the report.

To contact the reporter on this story: John Gittelsohn in New York at

To contact the editor responsible for this story: Kara Wetzel at

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