Since the government introduced its Home Affordable Modification Program (HAMP) approximately 1.25 million homeowners have had their loans modified, but worryingly since then 27% have gone on to re-default on these loans. These figures have come from a quarterly report to Congress and were compiled by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).
According to the article in DS News, SIGTARP pointed to the Treasury that they should’ve heeded previous recommendations regarding the Home Affordable Modification Program, and that as far back as April the Inspector General had expressed concern over the increasing number of homeowners defaulting on permanent mortgage modifications.
Apparently around some 29% or 184,000 homeowners who have received HAMP modifications through the Troubled Asset Relief Program as opposed to through a government-sponsored enterprise (GSE) have re-defaulted. This has cost taxpayers $972 million in incentives that have been paid out to investors and servicer for these modifications. Approximately 26% or just under 154,000 borrowers participating in GSE HAMP programs have re-defaulted. At the end of August another 10% of loans modified with HAMP were delinquent. Worryingly, the longer a homeowner has to remain in HAMP, the more likely they are to re-default. Amongst the oldest HAMP modification the re-default rate rises to 48.3%.
Out of those homeowners who subsequently re-default, approximately 32% will receive another loan modification, while another 13% will negotiate a short sale or deed in lieu of foreclosure. Approximately 22% of those who re-default will enter into foreclosure.
According to data from SIGTARP, there are just three servicers that account for nearly 60% of re-defaulters. These are J.P. Morgan Chase, Wells Fargo and Ocwen Loan Servicing. Even though these three servicers were responsible for the greatest number of re-defaulters, they were not the highest in terms of percentages. Out of the eight largest services participating in this program, Select Portfolio Servicing has the dubious honour of having the highest percentage of re-defaults. Some 43% of its modified loans have fallen behind on payments. The Bank of America and Ocwen are close behind with 31% of their loans falling into re-default.
The Treasury is well aware that not all of these loan modifications will succeed, as homeowners seeking assistance are more likely to be in situations that may be difficult to resolve, such as job loss. However SIGTARP has recommended that the Treasury research the extent to which HAMP mortgage servicers may be contributing towards homeowners re-defaulting, in order to ensure those who are part of the program are actually getting sustainable relief from the threat of foreclosure.