HAMP Modifications Have Just a 50% Success Rate: Moody's

The most recent Home Affordable Modification Program (HAMP) report released by the U.S. Treasury shows “extremely low conversion rates” from trial to permanent modifications, with success just a 50/50 gamble, according to commentary from Moody’s Investors Service.

As of the end of April, servicers participating in HAMP had converted almost 300,000 permanent modifications. However, they had also canceled 277,640 trial modifications. Moody’s says this represents approximately a 50 percent success rate. The report also shows 3,744 permanent modifications have been canceled.
According to Moody’s, the biggest culprits keeping conversions low are insufficient paperwork and negative equity.
“We believe the low conversion rate is a combination of two issues: borrowers failed to provide the documents they promised, and the rate reduction and principal forbearance used under HAMP were not enough to motivate severely underwater borrowers to start paying again,” Moody’s analysts wrote in their report.
The ratings agency says it expects recently announced program changes to produce higher conversion rates by allowing principal forgiveness. However this piece of the new HAMP directives are not expected to be ready for implementation before fall.
Moody’s notes that the lion’s share of HAMP modifications, 56 percent, has been on GSE-held loans, as expected. However, more than a third, 35 percent, occurred in the non-GSE or “private-label” sector.
“If servicers can increase modifications in the private-label sector and extend principal forgiveness under HAMP 2.0, default rates for mortgage loans backing private-label securities can be reduced significantly,” the analysts at Moody’s said.
“So far we assume that modifications will lower losses on pools backing private-label securities by approximately 5 percent,” they wrote in the report.

59% of Borrowers Would Not Walk Away if underwater in Foreclosure

A survey released Thursday by Trulia.com and RealtyTrac shows that only 1 percent of homeowners with a mortgage say walking away would be their first choice if they were unable to make their payments.

If their mortgage were to go underwater – meaning the property value drops below the amount still owed on the loan – 41 percent would at least consider a strategic default, while 59 percent would not consider walking away no matter how much their mortgage was underwater.

The latest data from CoreLogic reveals that nearly one in every five borrowers with a mortgage owes more than their home is currently worth, and as Pete Flint, Trulia’s co-founder and CEO, stressed on a call with reporters, the greater the negative equity, the higher the chances of strategic default.

But Flint says the new survey results show that “While it may not make the most sense to keep paying for this undervalued asset, many homeowners, at least for now, are holding on.”

With walking away from their mortgage obligation off the table for most homeowners, Flint broke down for reporters the avenues borrowers are leaning toward to prevent a foreclosure should they find themselves in that situation. He says only 5 percent of those surveyed say they would opt for a short sale as their first choice, while 69 percent would pursue a loan modification to save their home.

The study conducted by the two California-based companies also found that while the stigma around owning a foreclosure has subsided, interest in purchasing a foreclosure is significantly down compared to a year ago.

Currently, 45 percent of U.S. adults age 18 and above are at least somewhat likely to consider purchasing a foreclosed home in the future, compared to 55 percent this time last year, the survey results showed.

“For every borrower who avoided foreclosure through HAMP last year, another 10 families lost their homes,” said Flint. “It now seems clear that government programs will not reach the overwhelming majority of homeowners in trouble,” leading to a larger number of foreclosed homes on the market, he explained.

“Combined with decreased consumer interest around purchasing a foreclosure and it may take even longer than anticipated to see true health return to the real estate market,” Flint said.

While fewer may be in the market for a foreclosed home, Flint says people are becoming more realistic about the discounts they can expect on a distressed property. Eighteen percent expect bank-owned homes to come with a discount of less than 25 percent off the value of a similar home that was not in foreclosure – an expectation Flint called “realistic.” However, not all consumers are in line with market nuances, with 36 percent citing that they expect to receive a discount of 50 percent or more when purchasing a bank-owned property.

“Although fewer consumers expressed interest in buying a foreclosed home than a year ago, the actual sales of bank-owned properties (REOs), along with sales of properties in the foreclosure process, continue to increase — accounting for more than 30 percent of total sales in the first quarter of 2010 according to our data,” said Rick Sharga, SVP for RealtyTrac. “We anticipate that there will be an increased number of both REO purchases and short sales throughout the rest of the year as the most active buying segments – first-time homebuyers and investors – continue to look for bargains.”

Fewer Blacks believe home ownership is attainable

Many Blacks still see owning a home as a primary way to achieve the American dream. But a majority of Blacks believe that this dream is currently unattainable and will only be harder to achieve in the future, according to a Fannie Mae survey.
According to BlackAmericaweb.com, nearly 62 percent of Blacks surveyed said they still preferred to own a home, despite the recent recession and ongoing economic downturn, but 19 percent of those currently renting said the economy will force them to postpone purchasing a home. According to the survey, 73 percent of Blacks also believe that it would be more difficult for Black buyers to get a loan than the general population, and 61 percent said it will be harder for their children to buy a home. Most respondents believed it will be harder for them to own a home than it was for their parents.

The survey also found that 66 percent of Black homeowners have refinanced their homes, compared to 46 percent of the general population who have never done so. The survey of 3,051 citizens in the U.S. included mortgage borrowers, homeowners, renters and borrowers who owe more on their mortgage than their home is worth.

Survey respondents described difficulty in affording a home, poor credit and a complicated purchase process as their primary reasons for not owning a home. Many homeowners having trouble making their mortgage payments said they are considering defaulting on their loan.

While 83 percent of respondents in 2003 said they believed a home was a safe investment, that number declined to 70 percent in the recent survey.