Yesterday, we brought you the latest numbers from HAMP – the Home Affordable Modification Program – a true exercise in futility. But we had time to hit only the highlights. After digging into the Treasury’s report more in depth, we turned green.
Let’s sum up the relevant numbers, highest to lowest:
- Number of homeowners in default or foreclosure: 7 million
- Number of homeowners the White House hopes to help with HAMP: 4 million
- Number of homeowners who’ve gotten trial modifications under HAMP: 1.4 million
- Number of homeowners who’ve gotten permanent modifications: 230,801
So that’s 3.3% of homeowners in trouble that HAMP is actually helping.
Oh, but wait.
Once a homeowner is approved for permanent modification, what kind of debt load is he or she left with? You know, that might lend a clue to whether the borrower can keep up the new lower payments.
Traditional lending standards – those in place before the mortgage market took leave of its senses – dictated a mortgage payment should be no more than 28% of gross income, and the overall debt load (once you include credit cards, car payments, etc.) should be no more than 36%.
The typical homeowner who got a permanent modification now has a mortgage payment equal to 31% of gross income. Not too out of line with reason. But once you throw in all the other debt, the “back-end ratio,” as they say, what do we have?
So that’s three dollars out of every five – before taxes! – servicing debt. Doesn’t leave a whole lot for groceries, gas or anything else.
Before they were approved for their permanent modification, their total debt load amounted to 75.7%. That’s 1.2 million people who are now emerging from purgatory and headed to Hades. Sooner or later, anyway. They have yet to receive their final notices.
We may “hope the housing market recovery remains on course.” But as our mothers told us, we “hope for the best,” but prepare for reality. We may be comfortably in the minority, but we believe housing and commercial real estate are about to get another shellacking and have arrayed our investment recommendations accordingly