Mortgage Modification Program Statistically Insignificant

How meaningful is the mortgage modification program? What have we gotten for the billions committed to this initiative? Are you sitting down?

For frame of reference, the U.S. Census Housing Data indicates there were 110.3 million occupied housing units in the country in 2007. Of that number, 68.1% were owner-occupied. Simple math tells us 75.1 million people owned their home at that point.

Various studies indicate that approximately one of every three homeowners are now ‘underwater’ (mortgage balance exceeds home value). Many analysts believe that number is headed higher. A Deutsche Bank analyst projects one of every two homeowners will ultimately be ‘underwater.’

Simple math indicates that approximately 25 million homeowners are underwater. What is being done to support these homeowners? Uncle Sam’s primary program to support this growing problem is the ‘mortgage modification’ program. This program is supposed to be driven by mortgage servicers. How is it working? Let’s navigate.

Recall that the funds targeted for this effort have come from the Troubled Asset Recovery Program (TARP). The General Accounting Office (GAO) recently published a Review of the TARP. This review is extensive, running 112 pages. On page 92, we get an overview of the Home Affordable Modification Program (HAMP). The report reads:

Most of Treasury’s efforts to develop HAMP have been directed to the first-lien modification program. Treasury has designed the first-lien program to target borrowers in default (defined as 60 days or more delinquent on their mortgage payments) or in imminent danger of default (borrowers that are current on their mortgages but facing hardships such as job loss or interest rate increases on their adjustable rate mortgages).

Treasury has established several eligibility requirements for borrower participation in HAMP, including that the property be an owner-occupied, single-family residence (one to four units) that is the borrower’s primary residence and that the mortgage loan amount not exceed specified dollar thresholds.

Additionally, borrowers cannot participate in HAMP if they have non-GSE loans unless their servicers have signed participation agreements with Fannie Mae—Treasury’s administrator for the program. According to Treasury, as of September 25, 2009, the following HAMP progress has been made related to loans not owned or guaranteed by Fannie Mae and Freddie Mac:

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.

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About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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