Loan modifications facilitated through the government's Home Affordable Mortgage Program (HAMP) have historically re-defaulted at a lower rate than proprietary loan modifications, but HAMP mods facilitated in 2014 began re-defaulting at a higher rate than those modified in the two previous years, according to Black Knight Financial Services' November 2014 Mortgage Monitor released on Monday.
Black Knight's study revealed that HAMP loan mods were re-defaulting at a higher rate for loans modified in 2014 than those modified in 2012 and 2013. About 9 percent of all HAMP mods completed in 2014 were delinquent after eight post-mod payments, compared with delinquency rates of 6 and 5 percent after eight post-mod payments for HAMP mods facilitated in 2012 and 2013, respectively.
There has been a significant shift in the makeup of loan mod activity by investor in the last five to six years for both proprietary and HAMP loan mods. In 2009, the first year of HAMP, about 30 percent of HAMP loans were on private or portfolio loans and about 70 percent were on GSE loans. In 2014, only 10 percent of HAMP mods were on GSE loans, about 18 percent were on portfolio or private loans, and about 72 percent were on FHA or VA loans. In 2013, only 16 percent of HAMP loan mods were on FHA or VA loans.
"The increase in 2014 HAMP re-default rates seems to be driven by the fact that 70 percent of HAMP mods this year were on FHA loans, and those modifications included lower payment reductions than they had in years past," said Trey Barnes, Black Knight’s SVP of Loan Data Products. "For 2011 to 2013 vintage FHA HAMP mods, between 70 to 77 percent of borrowers received payment reductions of 20 percent or more. In 2014, that share was just 58 percent. Black Knight's data shows a conclusive correlation between greater payment reductions and lower re-default rates, so what we’re seeing here is likely the other side of that equation."
For proprietary loan mods, about 75 percent of them were on portfolio or private loans in 2008, while about 10 percent of them were on GSE loans that year. By 2014, nearly 60 percent of proprietary loan mods were on GSE loans and about 30 percent of them were on portfolio or private loans.
Overall loan mod volume has been steadily declining since January 2014 and is way down from its 2009 and 2010 peak levels, according to Black Knight. The percentage of HAMP mods that make up all loan mod activity has been steadily increasing, however – for November 2014, it was slightly above 50 percent, compared to less than 20 percent for most of 2013 (it did reach as high as 60 percent earlier in 2014).
Overall mortgage loan delinquencies increased month-over-month by 11.82 percent in November 2014 up to 6.08 percent, the largest monthly increase in six years. It also broke a string of nine consecutive months with a delinquency rate of less than 6 percent.