The misfortunes of the US Treasury’s Hamp programme continue to make headlines.
On Monday, the department released its latest data for the Home Affordable Modification Plan. The April report showed that about 123,000 trial Hamp mortgage modifications were cancelled last month, and some 37,000 new trials were started, amongst other things.
Clearly the programme is slowing down. Is that a problem?
From a banking perspective, one of the `benefits’ of Hamp is its ability to `extend and pretend’ — that is, allow banks to avoid foreclosing on borrowers that have fallen behind in their payments.
Under Hamp, mortgages in trial modifications are classed as delinquent until they are (hopefully) made permanent, at which point they are reclassified to current status — albeit with lower payments.
That reclassification feeds into banks’ statistics, and real estate owned (REO) inventory, and gives them some breathing space to wait for house prices to recover.
With Hamp tempering, however, those effects might soon dissipate.
Jim Fickett has a great chart on the subject over in the Long Room. Here it is:
And here’s his commentary:
First note that the number of cancellations is not just rising, but accelerating upward. Thus we can expect the number of active modifications not only to keep falling, but at an accelerating clip. When the number of permanent modifications rises far enough to meet the number of all active modifications, as they come down, there will be no more trials to convert, and the positive effect of HAMP on delinquencies will be over. It would appear from the graph that this will occur in something like three months, i.e. July.
At about the same time, the re-defaults may become a significant force. The number of permanent modifications first reached a substantial level in about January. According to the Mortgage Metrics report, roughly half of all modifications re-default within six months. Thus by summer HAMP will probably be causing a net increase to the pool of serious delinquencies, rather than the current net decrease.
Something to watch out for then.
Related links:
Foreclosure or forgiveness? – FT Alphaville
Hamp, what is it good for? – FT Alphaville