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The Effect of Stepups on HAMP vs. Proprietary Mods

Modification BHThe government’s Home Affordable Modification Program (HAMP), which started in early 2009 in response to the crisis to help struggling families avoid foreclosure and stay in their homes, is set to expire at the end of this year.

To date, HAMP has helped 1.8 million families and completed 2.3 million homeowner assistance actions. Treasury estimates that 96 percent of modifications completed through HAMP receive an interest rate reduction, and 80 percent of those will experience at least one rate “stepup” five years after the modification.

How are these modifications performing after their initial stepup? According to Black Knight Financial Services, the rise in monthly payments due to interest rate stepups appears to have caused very few mortgage loans modified through HAMP to redefault. To make their determination, Black Knight examined a pool of 64,600 first-time HAMP interest rate stepups,

“Only about 1 percent of borrowers observed going through the initial round of HAMP step-ups appear to have defaulted because of their rise in payment,” Black Knight stated. “To put this in context, of the estimated 290,000 borrowers that faced first time rate step-ups through Q4 2015, only 2,900 would have become 90-days delinquent as a result.”

The more pronounced effect of stepups on borrowers occurred in the area of proprietary modifications, according to Black Knight. In examining a pool of 33,600 first-time proprietary stepups, the analysis found that the higher resulting rates from stepups on proprietary modifications resulted in higher redefault rates on those loans than on HAMP mods that experienced stepups.

Both proprietary and HAMP modifications experienced the lowest default rate on stepups that resulted in a 3 percent monthly mortgage rate. With HAMP in particular, mods that went from 2 to 3 percent experienced the lowest impact, with an increase of less than 1 percentage point and a 46 percent increase in the number of loans rolling into 90-day delinquent status within six months of the stepup.

When the post stepup mortgage rate is increased to 4 percent, borrowers experienced twice the impact of those whose rate increased up to 3 percent after the stepup, according to Black Knight.

Conversely, stepups on proprietary modifications that resulted in a rate of 5.5 percent or higher saw a 4.6 percentage point increase along with a 174 percent rise in the number of loans rolling to 90-day delinquent status.

BK Graph 2

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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