In the most recent Home Affordable Modification Program (HAMP) report, released by the Treasury Department, it shows “extremely low conversion rates” from trial to permanent modifications—according to Moody’s Investors Service, this is a 50-50 crap shoot.
By the end of April, HAMP had converted nearly 300,000 permanent modifications while canceling 277,640 trial modifications. As well, 3,744 permanent modifications were canceled. This, according to Moody’s, is only an estimated 50% success rate and they blame insufficient paperwork and negative equities as the reason for lack of success.
Moody’s analysts wrote, “we believe the low conversion rate is a combination of two issues: borrowers failed to provide the documents they promised, and the rate reduction and principal forbearance used under HAMP were not enough to motivate severely underwater borrowers to start paying again.”
Recently announced HAMP changes should, according to Moody’s, produce higher conversion rates by accepting principal forgiveness. However, such changes are not due for implementation until fall.
It was also noted a bulk of HAMP modifications, 56%, have been on GSE-held loans. Yet, more than a third, 35%, occurred in the non-GSE or “private-label” sector.
“If servicers can increase modifications in the private-label sector and extend principal forgiveness under HAMP 2.0, default rates for mortgage loans backing private-label securities can be reduced significantly…So far, we assume that modifications will lower losses on pools backing private-label securities by approximately 5 percent,” said Moody’s analysts.