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2010-06-21 15:16:02
Cancelled Loan Modifications Surge 55% in May

Three times more borrowers had their mortgage modification trials cancelled in May than those who were approved for permanent payment relief.

The May update for the Obama Administration’s Home Affordable Modification Program (HAMP) shows that cancellations continue to significantly outpace conversions into permanent lower payments. HAMP is intended to assist more than 3 million homeowners delinquent on their mortgage who may be eligible for help.

Through May, 429,696 cancellations of trial modifications are reported, representing a 55 percent jump over April’s figure.

At the same time, the number of modifications that have been made permanent increased just 15 percent in May to 340,459.

Last week, Fitch Ratings projected that most borrowers in “permanent” modifications will default within 12 months under HAMP. The default rate will be as high as 75 percent on modified subprime or other mortgages deemed at above-average risk, Fitch said. On prime loans, Fitch sees the default rate as high as 65 percent.

The Obama Administration today released the HAMP update as part of a new “monthly housing scorecard” which officials say incorporates other key market indicators. Its intent is not to have HAMP be the sole barometer of administration efforts to reign in the unabated foreclosure crisis.

The administration said that nearly half of homeowners unable to enter a HAMP permanent modification are provided an alternative modification with their Servicer – “and fewer than 10 percent of cancelled trials move to foreclosure sale.”

In a statement, the U.S. Department of Housing and Urban Development (HUD) and the Treasury – the two HAMP administrators – compared housing market conditions to a year ago. “The Administration’s housing policies, combined with actions of the Fed, have lowered mortgage interest rates, helped stabilize home prices and reduced the rate of foreclosures, repairing some of the damage caused by the financial crisis to the financial security of millions and millions of American families,” said Treasury Secretary Tim Geithner.

But the scorecard only briefly mentioned one of the biggest obstacles to housing recovery: inventory. 

“However, the foreclosure prevention initiatives are not intended to help all borrowers and the market will continue to adjust for some time. The supply of homes on and off market remains near all-time highs. It will take time to work though this large inventory,” the statement said.

See the HUD/Treasury statement.

See HAMP update for May.

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