Hamps across America | FT Alphaville

Hamps across America

There’s a key word missing in the below press release on the US Treasury’s Hamp programme:

WASHINGTON – Today, the Obama Administration released the next monthly report for the Making Home Affordable (MHA) loan modification program. As part of an ongoing commitment to transparency, the report includes for the first time state-specific trial modification numbers. With more than 650,000 modifications under way across the country, the program is on track to meet its goals over the next several years.

Have you spotted it?

It’s `trial.’ 650,000 trial loan modifications are under way across the country, up from the circa 490,000 trial mods reported in September.

Under the Home Affordable Loan Plan, the Treasury, in an effort to halt the steady march of US residential foreclosures, pays mortgage lenders and servicers, including the banks, to agree to modify loan terms for homeowners. The lender agrees to reduce monthly payments for the homeowner in a “trial” modification period lasting three months, which is then hopefully made into a permanent payment reduction plan.

The permanent bit is important since the trial mods have the effect of increasing banks’ delinquency rates but decreasing net credit losses. If the trials become permanent, the loans jump out of the delinquency bucket and return to current status.  But if they don’t become permanent, the credit-loss-mitigating benefit quickly evaporates. The loans (probably) go into default and the bank simply forecloses on the properties — pushing up their credit losses.

As of September 1, just 1,711 of those 490,000 loan mods had been completed, according to a New York Times article. The apparent fact that so few of the trial mods have become permanent has been one of the prime criticisms of the programme. One of the other criticisms is that redefault rates for Hamp modified-mortgages could well end up being as high as for non-modified loans. The Treasury hasn’t provided much guidance on redefault rates either.

Reportedly the info on permanent mods, if not the redefault rate, is coming.

In the meantime though, here’s a link to the full (October) Hamp Servicer Report and a nice set of maps depicting the geographical dispersion of  (trial!) Hamp modifications:

(H/T Calculated Risk).

Related links:
Hamp servicers start 650,000 trial modifications – HousingWire
The automated Hamp – FT Alphaville
More than you probably ever wanted to know about the Hamp – FT Alphaville