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HAMP’s Redefault Rate at 27% and Likely to Rise

Over the life of the government's Home Affordable Modification Program (HAMP), 1.25 million homeowners have received permanent HAMP modifications, and 27 percent of those have later redefaulted on their loans, according to a ""quarterly report to Congress"":http://www.sigtarp.gov/Quarterly%20Reports/October_29_2013_Report_to_Congress.pdf from the ""Office of the Special Inspector General for the Troubled Asset Relief Program"":http://www.sigtarp.gov (SIGTARP).


In its report released to lawmakers this week, SIGTARP berated Treasury for not heeding the office's previous recommendations regarding HAMP, stressing that the inspector general expressed concern in April that ""the number of homeowners who have redefaulted on HAMP permanent mortgage modifications is increasing at an alarming rate.""

About 184,000 homeowners (29 percent) who received HAMP modifications through TARP rather than through the GSEs have redefaulted, costing taxpayers $972 million in incentives paid to servicers and investors for those workouts, according to SIGTARP. Among borrowers participating in the GSEs' HAMP programs, just under 154,000 (26 percent) have redefaulted (HAMP incentives on GSE loans are paid by the GSEs themselves). Additionally, about 10 percent of all active permanent HAMP modifications were one or two months delinquent as of the end of August.

""The longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program,"" SIGTARP stated. The redefault rate among the oldest HAMP modifications is 48.3 percent, according to SIGTARP's report.

Homeowners who fall three months behind on their modified payments redefault out of the program and fall ""often into a less advantageous private sector modification or even worse, into foreclosure,"" SIGTARP said.

About 32 percent receive another modification, often a proprietary one, and about 13 percent work out a short sale or deed-in-lieu of foreclosure with their servicer. About 22 percent of HAMP redefaulters enter foreclosure.


SIGTARP also reported the breakdown of redefaults by servicer, finding that three servicers account for almost 60 percent of HAMP redefaults: Ocwen Loan Servicing, JPMorgan Chase, and Wells Fargo. While these three servicers contributed the greatest number of HAMP defaults, none of the three ranked highest in terms of the percentage of HAMP redefaults.

Among the eight largest servicers participating in the government program, Select Portfolio Servicing had the highest percentage of redefaults with 43 percent of its HAMP-modified loans falling behind on payments. Ocwen and Bank of America followed with 31 percent of their HAMP loans defaulting again. Twenty-five percent of Nationstar's HAMP loans have redefaulted.

SIGTARP said in April that ""Treasury still does not understand … the reason the permanent modifications in HAMP actually failed.""

The inspector general stated in the latest report to Congress, it was ""a positive sign that following SIGTARP's April 2013 recommendations that Treasury initially expressed its commitment to assessing and reducing redefault rates. . . . Following that, however, on July 22, 2013, Treasury posted a blog"" defending the HAMP program and stating in the post, ""mortgage modification programs include an inherent risk of homeowner default, given the difficult situations homeowners face when they seek assistance (like job loss)."" In the same defensive posture, Treasury stressed ""that not all will succeed"" in the HAMP program.

For its part, SIGTARP said ""HAMP is a program that has been plagued with servicer misconduct"" and recommended Treasury ""research and analyze whether and to what extent the conduct of HAMP mortgage servicers may contribute to homeowners redefaulting"" in order to ensure homeowners in HAMP are getting sustainable relief from foreclosure. SIGTARP charges Treasury with establishing a benchmark for redefaults, measuring the program against that benchmark, and revealing the results to the public.

Treasury has responded that ""it cannot establish a benchmark without SIGTARP's guidance,"" to which SIGTARP responded, ""it is up to Treasury to set performance standards for its own program and measure the participants' performance.""

In its report to lawmakers, SIGTARP also revealed basic characteristics of HAMP modifications. The vast majority--95.9 percent--include an interest rate reduction. About 63.2 percent include a loan term extension, and 15.3 percent include principal forgiveness.

Treasury has extended the HAMP application period for two years until December 31, 2015.


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