Throwing good after bad is not a practice that generates long term success and prosperity. In fact, the unintended consequences and costs of dysfunctional governmental 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 that 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.