Private mortgage mods perform worse than HAMP

Mortgage modifications completed through private bank programs redefaulted at a rate nearly twice as high as the government’s. More than 34% of the 129,000 private workouts completed in the first quarter of 2010 went two months without a payment within the first 12 months, according to recent data from the Office of the Comptroller of the Currency. That compares to 19.4% of the roughly 100,200 Home Affordable Modification Program mods completed that same quarter that fell into delinquency again within a year. “HAMP modifications have generally performed better than other modifications implemented during the same periods,” the OCC said. “These lower post-modification delinquency rates reflect HAMP’s emphasis on the affordability of monthly payments relative to the borrower’s income, verification of income, and completion of a successful trial payment period.” Since HAMP launched in March 2009, participating servicers started more than 791,000 permanent modifications through August. But the total number by the time the program is scheduled to end in December 2012 will fall far short of the 3 million to 4 million borrowers the Treasury Department originally estimated. Lower performing private-sector modifications, by comparison, have consistently doubled HAMP workouts since the program began. While the redefault rate of private workouts fared worse, taxpayer money is not at risk. “Treasury rushed HAMP out the door in a manner best described as ‘ready, fire, aim,’ leading to mistakes that are still ricocheting today,” said Neil Barofsky, former special inspector general for TARP, in prepared testimony before a Housing subcommittee hearing Thursday. More recent modifications have been more successful, however, but private modifications are still struggling. Roughly 5.8% of the 53,250 HAMP workouts completed in the first quarter of 2011 fell 60 or more days delinquent within three months – meaning the borrower made no more than one payment before falling behind again. But that redefault rate is nearly half of the 10.9% of first quarter 2010 HAMP mods that fell delinquent within three months. Comparatively, 10.7% of private mortgage modifications done in the first quarter of 2011 redefaulted within three months, just one percentage point below the 11.7% of first quarter 2010 private workouts that redefaulted within the same period of time. Marietta Rodriguez, head of homeownership and lending at NeighborWorks America said private modifications don’t usually take into account a borrower’s entire debt-to-income ratio, rather just the mortgage obligation. This makes HAMP stricter but better performing as the economy takes its toll on borrowers in programs that don’t consider the overall debt crisis many households are experiencing. “From what we’re hearing from housing counselors on the ground, unemployment and underemployment continues to hurt the borrower’s ability to pay,” Rodriguez said. “Until the economy begins to improve, you’ll continue to see redefaults heading in this direction.” Write to Jon Prior. Follow him on Twitter @JonAPrior.