Mortgage Modification Redefault Under TARP and HAMP

The Special Inspector General for the Troubled Asset Relief Program (TARP) on July 24, 2013 published figures concerning the program. According to the Special Inspector General, HAMP helped about 865,000 homeowners avoid foreclosure through permanent mortgage modifications, however, more than 306,000 of these modifications have redefaulted into private sector modifications or foreclosure. Of the homeowners still in the HAMP modification, more than 88,000 have missed one or two monthly payments.

Twenty-two percent of homeowners who have defaulted on their HAMP permanent mortgage modifications have moved into the foreclosure process. Redefault rates of the oldest 2009 HAMP permanent mortgage modifications have continued to increase as they age at a rate of 46%, while the 2010 HAMP permanent mortgage modifications are redefaulted at a rate of 38%.

The redefaults cost taxpayers money. As of April 30, 2013, $815 million has been spent on more than 163,000 HAMP permanent modifications that redefaulted.

In spite of this bad news, the HAMP program has been extended to December 31, 2015. Hopefully this will allow the program to become more efficient and figure out how to reduce the number of redefaults by looking at early warning signs which would allow the program to further help homeowners.

WHO IS MOST LIKELY TO DEFAULT

Data shows a pattern of homeowners that are most likely to default:

1. Received the least reduction in their monthly mortgage payment and overall debt;
2. Are still underwater; and
3. have subprime credit scores and high overall debt.

The Treasury obligated $19.1 billion for the HAMP First-Lien Modification Program, however, as of April 30, 2013, the Treasury has only expended $4.4 billion, or 23%, on HAMP permanent modifications. On April 30, 2013 865,100 homeowners were in an active HAMP permanent mortgage modification. Of these, 88,813 have missed one or two payments.

The Southeastern United States (AL, FL, GA, MS, NC, PR, SC, TN and VI) have an average default rate of 28%, with Florida being slightly lower at 27%. In the area where I practice, Jacksonville, Florida, as of April 30, 2013, there were 7,784 permanent modifications, 5,199 active modifications, and 2,509 redefaulted modifications reflecting a redefault rate of 32%.