The US Treasury reported recently that it’s loan modification program (HAMP) has “extremely low conversion rates” from trial to permanent in their most recent report on the program, according to Moody’s Investor Service[1]. While that number still equates to the conversion of nearly 300,000 permanent loans, it also indicates the cancellation of 277,640 trial modifications and 3,744 permanent modifications.
Interestingly, it does not appear that inability to pay on the converted loans is a major contributing factor. In fact, Moody’s seems to believe that motivation to pay is the problem. While some borrowers’ loans were cancelled due to failure or inability to provide promised paperwork, Moody’s believes that “the rate reduction and principal forbearance used under HAMP were not enough to motivate severely underwater borrowers to start paying again.”
While new program changes that include principal forbearance may help resolve this issue, these changes will not be implemented before fall. In the mean time, HAMP servicers will have to try other methods already included in the program to try to motivate borrowers to start paying once more.
Given that most borrowers – even the ones who want to sell and get out – are legally required to attempt a HAMP modification before going the short sale route, it does not seem particularly surprising to me that it is difficult to motivate them to pay on a modification that they may not even want. What has your experience been with HAMP and borrowers who just want to short sale? As an investor, how are you handling loan-modification requirements for sellers who really just want to sell? How is this impacting your investing strategy?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.dsnews.com/articles/hamp-modifications-have-just-50-success-rate-moodys-2010-05-28
I had it amusing of how popular it is to bash those in government
as those they are from another planet that has invaded and conquered us against our will! So I guess the answer is to
privatize everything then the free market utopia will be ushered in,
hogwash! Both government and private businesses suffer from the
same short comings, human natures dark side, you know fear
greed corruption lack of character etc etc etc. Your simpistec
approach does not offer real solutions and uselessly and
continuously demagogues the issue. The answer is put good
people in all areas in the public and private sectors that is the
best of the best that humanity has to offer then real solutions to
serious complicated problems will be addressed and solved. Until
then these problems will continue! People are people and will
continue to act in whatever office they have whether public or
private according to their individual character or lack thereof!
Bryan, don’t know if you’ve seen this site, but financialstability.gov provides some very interesting data regarding the HAMP program. As a lender the thing that stands out most to me is that the average total DTI for completed loan modifications is 64%.
There is no way a person with a 64% dti can continue to make their payments. That leaves 36% of their gross for everything, take out 20% for federal tax and 8% for social security and they are left with 8% for everything else in their life.
Not gonna happen!
Carol in response to your HAMP blog, I completly agree and would like to say that I have worked with several homeowners who have been required to agree to the HAMP in order to process a short sale. Not only is it not right and not in the best interest if the homeowner if all they are wanting to do is sell and move on, but then the HAFA program which tells them what they have to list and sell thier house for is ridiculas!