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Facts and Figures: A Detailed Look at What is Really Wrong With Loan Modifications

- Monday, March 14, 2011

We’ve been hearing lots of general statistics about the failure of loan modifications programs, both HAMP and loan modifications negotiated outside of HAMP. For example, last month’s news that nearly half of loan modifications that made it to “permanent” status end up falling behind within 12 months.

But a new study out this past week presents the most detailed analysis yet. Using the Treasury Department’s own figures, information obtained from Freedom of Information Requests, and industry and state data, authors Olga Pierce and Paul Kiel of have taken a detailed look at how loan modification programs are working. And their conclusion is that HAMP, as well as other loan-modification programs outside of HAMP, are an overall failure.

Below, you will find highlights of some of the conclusions the authors came to - but please refer to their original article By the Numbers: A Revealing Look at the Mortgage Mod Meltdown for more details on how they arrived at their conclusions, and especially for their great graphics that illustrate the scale of the loan modification problems.

Only a fraction of struggling homeowners are getting help.
A very small percentage of underwater homeowners are receiving loan modifications, and the average rate at which loan modifications are being negotiated is not significantly different from what the rate was before HAMP was initiated.

Mortgage servicers are reaching only a small fraction of struggling homeowners.
Only about one third of homeowners who are two or more months behind on their mortgage payments are actually in contact with their servicers about strategies to avoid foreclosure.

The largest servicers have left most struggling homeowners hanging without either modifying or foreclosing.
A significant percentage of subprime loans that are more than three months delinquent have neither been modified nor foreclosed on, leaving the homeowners in limbo. Bank of America had the poorest record here, with 41% of delinquent loans not yet in foreclosure, in spite of the average delinquency being 13 months.

HAMP hasn’t led to an increase in modifications.
There are currently about 125,000 loan modifications per month (including loan mods both within and outside of HAMP), which is the same rate as just before HAMP launched. The rate actually decreased as HAMP delayed the process, then peaked, and has now fallen back to the pre-HAMP level.

Only about 20% of homeowners who have applied for a HAMP modification have received a permanent modification.
Nearly half were denied before even getting a trial modification.

Mortgage servicers cited missing documents in a quarter of loan modifiction rejections.
In many cases, the servicer themselves lost the documents, or had never asked for the documents they cited as “missing.”

Most TARP funds set aside to help homeowners are still unused.
The Treasury Department set aside $37 billion to help struggling homeowners through HAMP and the Hardest Hit Fund - but only $1 billion of this has been used so far.

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