Here We Go Its HAMP Confusion Day

I can’t be the only one to have noticed how we’ve changed the way we report statistics driven news stories in this country.

I mean, today anything that happens for a month is a trend, two months and my God, it’s an overwhelming reversal of whatever used to be some other way.  Headlines read: Retail Sales Post Strong Increase, when by “strong” they mean as compared with the weakest numbers in 70 years.

“It was the second straight month to see gains in the index!”  What index?  Who cares, it’s two months of something having “gains”.

Or, how about this for fabulous news…

“In recent coin tossing studies, for the first time in two months, coins preferred heads over tails by a two to one margin!  The news bolstered investor confidence on Wall Street because it comes after two straight months where many coins were favoring tails.  If this next week’s results show even more coins favoring heads, it will be a clear sign that the economy has found its footing and although there will be some incidence of tails expected in future months of coin tossing, experts forecast that tails, over the long haul, won’t exceed 50%, a level that’s seen as being conducive to continued coin tossing.”

Film at eleven.  Look, honey… everything’s going to be just fine… is this a great country or what?

Well, on Sunday when I looked to see what data was due to come out this week, and saw that there were several real estate related reports hitting the tabloid news, I had to fight back the urge to run to the mountains and not return until the stupid people were done analyzing their week over week, long term trends.

The real estate industry is positively pathetic in their apparent willingness to simultaneously all agree that the emperor’s clothes are entirely magnificent. And the real estate industry’s reporting today includes the performance numbers related to the foreclosure crisis and loan modifications… and that means HAMP.

The latest HAMP report was released late on Monday of this week, and within hours pundits were drawing ridiculous and erroneous conclusions based on Treasury’s loan modification statistics for the month of April.  Yes, apparently it is time for: HAMP Confusion Days!  Or, with all of the whining and posturing that’s going on, perhaps we should call them: The Days of Whine & Poses.  (Sorry about that.)

Here’s a few takes from the Huffington Post’s piece based on the latest Treasury HAMP report:

HAMP Update: Twice As Many Homeowners Kicked Out Of Obama Foreclosure Program As Given Permanent Relief, New Data Show

There were more cancellations in April than there were new permanent and trial modifications combined. The number of cancellations was about 27 percent higher than the number of new trial and permanent plans, according to Treasury Department data.

More than 123,000 homeowners were bounced from the administration’s Home Affordable Modification Program in April versus about 60,000 who were offered five-year plans of lowered monthly payments.

Notice that the pace of new trial modifications has slowed sharply from over 150,000 in September to around 47,160 in April 2010.

This is the first month since the administration started reporting cancellation figures that the number of canceled modifications outpaced the number of new permanent modification offers.

The number of canceled modifications skyrocketed 82 percent in April compared to March.

Here’s weighing in:

About 299,000 modifications are “permanent”, and 277,000 trial modifications cancelled. There is still a huge number of borrowers in limbo. According to HAMP, there are 637,353 “active trials”.

As of April, there were 1,214,085 trials started, and as of last September there were 553,568. That gives 660,000 trials started over the last 7 months – about the same number as “active trials”. Ouch. That suggests that the HAMP trial period is about 7 months!

Notice pace of new trial modifications slowed sharply from over 150,000 in September to around 47,160 in April 2010. This is slowest pace since the program started… The program is dying…

And here’s their take on the front and back end debt to income ratios of HAMP’s modified homeowners:

Debt-to-income ratios worsen…

If we look at the HAMP program stats, the median front end DTI (debt to income) before modification was 44.9% – up slightly from 44.8% last month. And the back end DTI was an astounding 80.2% (up from 77.5% last month).

Think about that for a second: Over 80% of the borrowers income went to servicing debt. And it is over 64% after the modification.

Business Insider sums it up as follows:

In summary: 1) the program is dying, 2) the borrowers DTI characteristics are poor – and getting worse, and 3) there are a large number of borrowers in modification limbo.

Just imagine the characteristics of the borrowers who can’t be converted!

New York Times

“There are millions of people in trouble on their mortgages, and for whatever reason, we’re not moving quickly enough to help them,” she said. “This is a sword of Damocles hanging over the housing market.”

From Huffington Post again…

“You know, while enabling eligible homeowners to modify their mortgages is vital to addressing the housing crisis with HAMP, it’s also extremely important to keep this in context that this is just one part of the administration’s comprehensive approach to assisting homeowners and stabilizing the housing market,” said Stevens, assistant secretary for housing at the Department of Housing and Urban Development.

“We don’t claim that the housing market is totally out of the woods, but it’s certainly showing signs of stabilizing,” added Herbert M. Allison Jr., assistant secretary for financial stability at the Treasury Department.

And here’s the take from Mortgage News Daily…

Is HAMP On Last Leg? Administration Pressures Loan Servicers for More

Thoughts? Are servicers totally to blame or is the Administration starting to give in to banks which want to pick up the pace of home inventory liquidation? Some homeowners just can’t be saved by HAMP. It looks like the Administration is trying to squeeze every last drop of rescue funding from the program though. Can’t blame them for trying…

HAMP Running Out of Qualified Borrowers to Rescue

Mortgage News Daily has discussed recent Administration initiatives to motivate servicers to play a bigger role in helping families save their homes, but we wonder if servicers are totally to blame or if the Administration is starting to scramble as the HAMP program may be close to helping all who are capable of being helped.

And here are just a few of Treasury Secretary Tim Geithner’s comments on HAMP, which were delivered during his statement to the Senate Appropriations Committee on April 29, 2010:

The Administration’s Home Affordable Modification Program has offered trial modifications to more than 1.4 million homeowners – this number represents roughly three-quarters of Americans estimated to be currently eligible for the program.  More than 1 million homeowners have begun these trial modifications and seen an immediate reduction in their monthly mortgage payments by an average of more than $500 per month, and we expect significantly more Americans will become eligible for the program over time.

Are you getting dizzy yet?  Let me throw one or two more in, just to make sure I’ve made my point.

Wells Fargo Analysis: 50% Fail HAMP Eligibility

Wells Fargo has 523,336 borrowers either in trial or approved mortgage modifications as of March 31, more of them as part of the lender’s own foreclosure prevention efforts.  Of those, 144,932 are part of the government’s Home Affordable Modification Program, HAMP, with active trial and completed modifications, also as of March 31.

Wells Fargo, which services about 16 percent of U.S. mortgages, said it initiated or completed three modifications for every one foreclosure sale on owner-occupied properties from October 2009 through March 2010.

In a statement providing an update on its foreclosure prevent efforts, Wells Fargo offered a glimpse into its analysis of the HAMP program’s troubled rate of assistance, with as many borrowers falling eligibility as those approved for the full term of mortgage relief.

Wells Fargo said half of the 138,000 homeowners who have made three HAMP trial payments as of March 31, will be offered modifications for the full term. Of the rest, 30 percent are expected to be deemed not eligible after documents are received, and another 20 percent will not provide some or all required documents.

(Wells Fargo’s) Heid, and counterparts at other top lenders testified this week before a House panel seeking feedback on HAMP’s expansion plans into principal forgiveness. The mortgage servicing executives expressed some reservations about the fairness and expense of mortgage write-downs.

Nonetheless, Heid said that Wells Fargo had initiated write-downs before HAMP was launched in 2009. The lender completed more than 50,000 modifications, with a total reduction in principal of more than $2.6 billion.

“On average, customers received a 15 percent reduction in principal amounting to greater than $50,000, and when combined with rate reductions and term extensions their average monthly payments dropped by 25 percent under the terms of their loan modification agreements,” Heid said.

The slow death of Hamp, the summer of delinquencies

Clearly the program is slowing down. Is that a problem?

From a banking perspective, one of the `benefits’ of Hamp is its ability to `extend and pretend’ — that is, allow banks to avoid foreclosing on borrowers that have fallen behind in their payments.  Under Hamp, mortgages in trial modifications are classed as delinquent until they are (hopefully) made permanent, at which point they are reclassified to current status — albeit with lower payments.

That reclassification feeds into banks’ statistics, and real estate owned (REO) inventory, and gives them some breathing space to wait for house prices to recover.

With Hamp tempering, however, those effects might soon dissipate.

Foreclosure Prevention Gains Little Ground

Washington, DC – May 18, 2010 – Today, the Treasury Department released figures for the Home Affordable Modification Program (HAMP) through April of this year. the numbers show that roughly 300,000 borrowers have received a permanent modification under the program. Meanwhile, foreclosure filings continue at a rate above 300,000 for the 14th straight month, according to Realty Trac:

“The latest HAMP numbers continue to be underwhelming. While it’s clear that some progress has made, it’s been incremental at best. the program is positioned to help a very modest percentage of borrowers weather the storm, but not to end the foreclosure crisis. at these levels of prevention, the foreclosures will continue to gnaw away at the economy,” said John Taylor, president and CEO of the National Community Reinvestment Coalition (NCRC).

“It’s clear that servicers are not getting the job done. almost as many homeowners have been allowed to drop out of the program as have been helped by it, and nearly a million homeowners are eligible for the program but can’t be helped because their servicer is not participating. Congress and the Administration need to look at requiring servicers to participate and adhere to strict foreclosure prevention guidelines. they should also enact proposals to create a broad scale principal reduction program as well as expand assistance to unemployed homeowners, as Senator Casey’s amendment to the financial reform bill would do,” continued Taylor.

HAMP Program A Failure Or Success?

The first reaction by the media and most analysts is that the effort is a failure. The program has posted 295,348 permanent mortgage alterations.  But, many of the 1,214, 805 trial loans started are still in limbo. Of those, 277,640 have been canceled.  A number of people have defaulted on their new mortgages, perhaps because their homes are underwater, or perhaps because they never had the money needed to pay any mortgage. Unemployment has almost certainly contributed to the problem.

The problems are severe from the standpoint of the program’s goals. The number of eligible delinquent loans is 3,275, 249, so the impact of the plan has been very modest.

The government has not had the organizational skills or sense to set up upfront documentation of borrower’s financial situations. The Treasury has set up a program to do that beginning June 1. The past lack of documentation is likely to have contributed to the program’s inability to permanently modify more mortgages.

Okay… damn it… that’s enough.

Look… everyone… stop the madness.  Nothing has fundamentally changed here.  The number of new trial modifications is lower for the month of April because the major servicers have all changed over to requiring income verification prior to homeowners entering into a trial modification required under HAMP.  Treasury requires this to be the case as of June 1, 2010, but most of the lenders and servicers started making the change in April so as to be ready by June 1st.  So, logic would dictate that there would be fewer trial modifications initiated as a result of such a change… right?

Speaking about the Treasury’s latest report, Bank of America’s Rick Simon said, “All the major banks, at Treasury’s suggestion, went from non-verified income to verification.”

Relax…. it would be lovely to believe that this drop off in trial modifications initiated meant something… like foreclosures are slowing down, or we’ve hit bottom, or any of the other happy thoughts it might be tempting to believe are true, but none of that is anywhere close to the truth.  And nothing went crazy right or crazy wrong in a month or two.  What we’re experiencing is going to be with us for a long, long time.  And you can choose to go up and down with the “news,” and I use that term very loosely, or you can choose not to, but whichever way you want to play this thing, it’s not going to change our economic reality.

On Page 6 of the Treasury’s latest report is something new in the way of data. It should come as no supprise whatsoever, but servicers who verify income before starting a trial modification have a much higher conversion rate than servicers that allowed borrowers to state their income.  Will wonders never cease?

So, and I can’t believe I’m the one saying what I’m about to say, but HAMP is doing slightly better.  That’s right I said it.  I was criticizing HAMP for being a poorly run and conceived program before most anyone, and now I’m going to be the first to tell you that’s it’s improving and will continue to improve over the next year.  That’s right, it’s getting better.  It’s not dying, nor is it going anywhere… it’s here to stay and it’s getting better.  There I said it.

Now here’s some data and insight into the foreclosure crisis today:

The number of bank foreclosures in the U.S. continues to increase in the month of April 2010, continuing a pattern that began in March when banks have started working on troubled loans contracts that they inevitably neglected during the second half of 2009. As banks rush the troubled mortgage issues in their books, the number of repossessed houses for April reached more than 92,000.

The April figure for repossession and foreclosure listings by state is only one percent higher than the figures recorded in March 2010; but compared with April 2009 numbers, it represents a 45% rise. Statistics showed that households facing foreclosures a year ago who were temporarily saved by government programs are now piling up to contribute to the huge increase in foreclosure rates.

Housing market observers have stated that real bank owned homes for sale numbers are now appearing following the failure of the government programs to provide a permanent solution to the foreclosure crisis. They added that the programs only delayed the inevitable and it has now caught up with the housing market all around the country.

Residential repossessions for the first four months of 2010 are up 27% compared with the same period of 2009. This trend is expected to continue for the next two years or so. Meanwhile, the number of households receiving loan default notices, the first step in the process of foreclosure, has somewhat leveled off and recorded a 12% decline during April compared with March. It also declined by 27% when compared with figures produced in April of the previous year.

According to real estate experts, the decline does not signal a decrease in the number of bank owned homes for sale. It just signifies that banks are more concerned about clearing their backlogs rather than creating new additions to their foreclosure books. Market experts further added that banks are trying to put their levels of inventory under control

With the release of the April housing figures, market experts are predicting that the foreclosure crisis will not be ending soon. They added that banks and lenders are starting to add more foreclosed properties to nationwide records in such a pace that it is becoming impossible for foreclosure-prevention efforts to keep up with the rising numbers.

Market experts have also added that with more bank foreclosures starting to be part of the nationwide tally, the foreclosure crisis is being pushed into the future. This could mean, experts speculated, that the country will face at least an additional five years of housing crisis as more foreclosed properties are introduced into the market.


Mandelman Out.

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