HUD Predicts HAMP Re-Default Rates to be 'Significantly Lower' Than Expected
As efforts continue to mend millions of defaulted mortgages through the government's Home Affordable Modification Program (HAMP), Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), told REO Insider that re-default rates on mortgages modified under the program will be “significantly lower” than what market commentators have predicted. Speaking Tuesday at the National Association of Real Estate Brokers (NAREB) convention in Fort Worth, Texas, Donovan said that HAMP and other programs from lenders and the Federal Housing Administration (FHA) have modified 2.8m mortgages. The Treasury launched HAMP in March 2009 to provide incentives to servicers for the modification of loans on the verge of foreclosure. According to the credit rating agency, Fitch Ratings, re-default rates on HAMP modifications could reach between 55% and 75%. But Donovan told REOi, the numbers should land far below that. “We should have the HAMP re-default rates out in a week or so, the revised numbers. I think it’s pretty clear that folks were expecting 60% re-default rates, and I think it’s clear that it will be substantially lower than that,” Donovan said. Fannie Mae and a third-party consultant are revising re-default rates for HAMP modifications released by the Treasury Department earlier in the month, which drew extensive criticism. The Treasury reported in July that those 3,643 mortgages permanently modified in Q309, 7.8% had fallen into 60-plus day delinquency six months after the conversion from a trial period. Of the 126,527 mortgages that received permanent modifications in Q110, 4.1% have fallen behind by 60 days or more. “Now, the program wasn’t perfect – partly because we wanted to get it up and running as quickly as possible,” Donovan said in his keynote address at the NAREB convention, but continued to say that the program is still on track to reach the initial goal of 3m to 4m modifications by the end of 2012. The nearly 3m modifications done in HAMP and other programs so far, Donovan said, have outnumbered actual foreclosures two to one, and he said foreclosure starts are down 18% from last year. He clarified that these are filings at the beginning of the foreclosure process. According to RealtyTrac, filings for the entire process from default to a foreclosure sale should reach 3.8m by the end of the year, an all-time record. Donovan said it’s important to look at the beginning of the process to gauge the market’s recovery. In New York, he said, a borrower can spend 18 months in the foreclosure process. “What we need to focus on now are the people that are entering the foreclosure pipeline now,” Donovan said. Write to Jon Prior.