Chances Are, Most HAMP Mods Won’t Work: Amherst

The Making Home Affordable Modification Program (HAMP) adds another layer of uncertainty for private label securitization investors, making it more difficult to predict cash flows, according to a report by analysts at Amherst Securities Group, who added they expect relatively few HAMP workouts to be successful. Additionally, it’s taking longer for bad mortgages to move from last payment to liquidation, and the pace varies by servicer: “The trial modification period essentially holds the loan in a suspended state for 90 days, making it difficult to assess what is happening with modifications,” the report said, resulting in relatively little cash reaching investors. Contributing to the delay in liquidation is the growth of re-performing loans — those that were 60 or more days delinquent that now aren’t because the borrower receives a modification or other loss mitigation action is taken — in mortgage backed securitization (MBS) pools. Of the $1,583bn in private label securitizations, $991bn are always performing, $474.8bn are non-performing (60+ days delinquent), and $117.5bn are re-performing. While the re-performing bucket is growing, it is also unstable, Amherst said. In September, $13.6bn (11.3%) of the re-performing loans transitioned to non-performing, and a roughly equal amount of the non-performers $11.5bn (2.5%) became re-performers. The cycle between the non-performing and re-performing loans includes both subprime and prime loans, Amherst said. “The behavior of re-performers is weak, no matter from which bucket they are taken.” In addition the overall size of the re-performing bucket may be understated because it does not include loans in modification limbo during the HAMP-mandated three-month trial period. The research warns the pool of modified loans is also expected to increase, as recent and proposed changes to HAMP regulations are making the program more widespread to include ever growing numbers of distressed borrowers. One such change is the proposed Senate Bill 1731, the Foreclosure Prevention and Assistance Act of 2009, which would require loan servicers to determine if a distressed borrower is eligible for a modification before beginning the foreclosure process. But in order for the servicer to make that determination, the servicer must make contact with the borrower to verify employment and income information. If the servicer can’t contact the borrower, the foreclosure can’t proceed. This differs from HAMP, a voluntary program that lets a servicer continue the foreclosure process if contact can’t be met. “At the minimum, the consequence of S. 1731 is that there will be a longer time between last payment and foreclosure. At worst, S. 1731 may suspend the foreclosure process indefinitely for many borrowers,” the report said. While HAMP workouts are keeping the pools of real estate owned (REO) property relatively small, Amherst predicts a low percentage of eventual success of HAMP modifications is inevitable. “When HAMP is less successful than hoped, and the reality of the housing overhand hit the market – we would expect to see further governmental action,” the report said, noting the most likely course of action is a plan that contains principal forgiveness. Write to Austin Kilgore.