Loan Modifications Surpass One Million Mark for 2010

From carrie Bay of DSNEWS
The industry has completed 1.13 million permanent loan modifications for at-risk homeowners so far in 2010, according to data released Wednesday by HOPE NOW, the private sector alliance of mortgage servicers, investors, mortgage insurers, and non-profit housing counselors.

For the month of July alone, servicers completed more than 120,000 proprietary loan modifications for homeowners. It was the second straight month that proprietary mods topped the 120K mark. As reported by Treasury Department, mortgage servicers also completed 36,695 permanent mods through the government’s Home Affordable Modification Program (HAMP) in July.

If a borrower does not qualify for HAMP, mortgage servicers determine eligibility for a proprietary loan modification that may help the homeowner stay in their home. HOPE NOW reports that 86 percent of proprietary modifications completed in July reduced the monthly payment for homeowners in order to make them more sustainable.

The industry group also reports that since January of this year, mortgage delinquencies of 60 days or more past due have dropped 20 percent, as of July 2010. HOPE NOW’s data show that 60-plus-days delinquencies decreased from 3,487,783 in June to 3,298,236 in July, a drop of 5 percent over the one-month period.
A number of analysts have suggested that recent drops in delinquency stats are simply the byproduct of an increase in foreclosures by servicers as they work through the huge backlog of defaulted mortgages and push cases through the pipeline.

HOPE NOW’s data seems to support this assumption. Along with the slight month-to-month drop in delinquencies, the organization also reported that foreclosure starts jumped 22 percent in July and completed foreclosure sales rose 12 percent. July’s foreclosure starts outpaced loan mods during the month by nearly 90 percent.

Foreclosures were initiated on 226,664 homes during the month of July, up from 186,395 in June, according to HOPE NOW. Sales were finalized on 97,951 foreclosed homes in July, compared to 87,842 the month prior.

Faith Schwartz, senior advisor for HOPE NOW, said, “As noted, we did see an increase in foreclosure starts and sales, despite the unprecedented efforts of the industry, along with its government and non-profit partners to offer many alternatives to foreclosure. We believe this is a function of borrowers moving through the pipeline of all eligible program offerings (government and private industry) to exhaust all alternatives.”

Schwartz added, “The increase in foreclosures is also a reflection of the continued challenges facing the economy, particularly the level of unemployment nationwide. We remain hopeful that as jobs start to come back the housing market will stabilize.”

Since HOPE NOW initiated survey data reporting in July 2007, the organization says more than 3.5 million homeowners have saved their homes through permanent loan modifications. This total reflects the combination of proprietary loan modifications plus those completed under HAMP.

Combined with other mortgage options, such as repayment plans and forbearance, the mortgage industry has assisted almost 10.4 million homeowners since HOPE NOW was formed in 2007.

Newer Modifications Less Likely to Re-Default: Barclays

DSNEWS NO COPYRIGHT INFRINGEMENT INTENDED
06/21/2010 By: Carrie Bay

While loans restructured under the federal government’s Home Affordable Modification Program (HAMP) have been highly criticized for their propensity to re-default, the analysts at Barclays Capital say newlymodified mortgages stand a better chance of staying current. The research firm says the evolution of the government-based mod program is leading to “measurable” improvements in loan performance.

Fitch Ratings recently said that it expects 55 to 75 percent of HAMP-modified borrowers to re-default, as DSNews.com reported last week. But Barclays says “[W]e find that re-default rates on newer modification cohorts are improving every quarter.”

The analysts at Barclays cite three main reasons why they believe newer modifications will be more successful in averting re-defaults.

First, they note that HAMP mandates a three-month trial period. As a result, they say, only stronger borrowers who have provided sufficient documentation may receive permanent modification. Failed trials, Barclays says, are not reflected in the re-default data since they are not yet considered true modifications, and therefore nonperformers are weeded out earlier in the process.

Secondly, Barclays has found that newer modifications include higher share of rate reduction in combination with debt forgiveness. The company’s researchers says these newer modifications result in “meaningful reductions” in monthly principal and interest payments, reducing borrowers’ debt burden and leading to fewer re-defaults.

And thirdly, Barclays says “as the pool of HAMP-eligible deeply delinquent borrowers gets exhausted, we expect more modifications to be performed on newly delinquent borrowers.” The company says these are borrowers who have already managed to keep paying through times of severe economic distress and turned delinquent only recently.
“We believe that these are inherently better quality borrows who have a higher propensity to pay once modified,” Barclays said.

Based on the research firm’s analysis, foreclosure stock peaked in March, totaling 3.8 percent of all mortgage borrowers. Barclays’ estimate of the national delinquency pipeline suggests that foreclosure stock fell by 2.6 percent in April, from 2 million to 1.95 million. The company points out that this decline was the first since 2005, and follows a decrease in the 90-plus day delinquency bucket the previous month.

“For the past year, current-to-delinquent roll rates have steadily improved,” Barclays said in its report. “But foreclosure stock has kept rising, due to programs that delayed homes from going into REO, such as HAMP. Now the tide seems to be shifting.”

Newer data suggests that foreclosure-to-REO roll rates are ticking up while delinquency rates have peaked, Barclays says, signaling that servicers’ efforts have caught up to market conditions and they’re making progress working through the foreclosure backlog.

But at the end of that liquidation chain, Barclays says “REO stock has a long way to go.” The company doesn’t expect the REO inventory to peak until August 2011, at 545,000 homes.

In April, Barclays says, REO stock hit 526,000 properties, primarily due to an increase in GSE REOs. Meanwhile, the company estimates that homes are moving from foreclosure to REO at a rate of 4.4 percent per month. This implies a 23-month timeline between foreclosure and REO, which unlikely to fall substantially in the near term, Barclays says.

The research firm notes that servicers are keenly cognizant of not jeopardizing the housing recovery with additional supply. Barclays also points out that distressed have begun to make up a smaller percentage of overall home sales.

The company estimates that distressed sales were 23 percent of April’s home sales – 122,000 of 521,000. This was a 6 percent decline from March’s distressed share of 29 percent. Of April’s distressed sales, Barclays estimates that 83,000 were REO and 29,000 were short sales. The research and analytics firm expects the pace of distressed liquidations to hover near 130,000 a month over the next two years.