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Report: Payment Reduction Key to Mod’s Sustainability

Thus far, the government's Home Affordable Modification Program (HAMP) has provided loan modifications for more than 1.1 million borrowers, according to housing reports released by ""HUD"":http://portal.hud.gov/hudportal/HUD and ""Treasury"":http://www.treasury.gov/Pages/default.aspx Friday. And, borrowers who receive a modification through HAMP are less likely to fall behind on their payments compared to borrowers who receive private sector modifications. While the likelihood of re-defaulting on a HAMP modification is smaller, borrowers can become disqualified from the program if they miss three consecutive payments.


According to the most recent Making Home Affordable Program report for March released by Treasury, the key to strengthening the chances a borrower won't fall behind is to provide a significant payment reduction.

""Payment reduction is strongly correlated with permanent modification sustainability,"" the report concluded after analyzing data from the Office of the Comptroller of the Currency (OCC).

For HAMP loans that had been converted for 24 months, just 16.7 percent with a monthly payment reduction greater than 50 percent became disqualified due to missing three payments. On the other hand, among borrowers whose payments were reduced by 20 percent of less, 42.8 percent became disqualified, the report revealed.


The report also noted that over time, a smaller share of HAMP modifications have become disqualified. For example, for modifications where 24 months has passed, 33.3 percent that started the process in Q3 2009 have become disqualified for falling behind, while 24.7 percent of borrowers who started in Q1 2011 have become disqualified.

In most cases, the fate of borrowers who became disqualified was not foreclosure, with the majority receiving another foreclosure alternative.

Data through February from the largest servicers show 7.2 percent of borrowers who disqualified become current. The largest share--28.7 percent--received an alternative modification, while 12.4 percent pursued a short sale or deed-in-lieu of foreclosure. Another 5.2 percent went on a payment plan.

According to the report, 10.8 percent of disqualified loans ended in foreclosure.

Also released with the Making Home Affordable report was the Obama Administration's housing scorecard for April.

The scorecard continued to point to progress from the housing market while noting efforts from the administration.

As for the recovery, the administration pointed to the increase in home values and strong sales, but still warned of a ""fragile"" recovery.

""The Obama Administration's efforts to speed the housing recovery are showing continued progress as the April scorecard indicators highlight ongoing improvements throughout the housing market,"" said Kurt Usowski, HUD deputy assistant secretary for economic affairs. ""The annual increase in home prices is the highest in nearly seven years and sales of existing and new homes are both up over 10 percent from one year ago. But with so many households still struggling to make ends meet, we have important work ahead.""

About Author: Esther Cho


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