Obama program mostly delays foreclosures, firm says

October 15th, 2009, 7:50 am · 9 Comments · posted by Mathew Padilla

Amherst Securities Group said it expects relatively few trial loan modifications to be successful under the Obama administration’s Making Home Affordable Modification Program, reports real estate news Web site Housing Wire. Here’s more:

Additionally, it’s taking longer for bad mortgages to move from last payment to liquidation, and the pace varies by servicer: “The trial modification period essentially holds the loan in a suspended state for 90 days, making it difficult to assess what is happening with modifications,” the report said, resulting in relatively little cash reaching investors.

Nationwide there are roughly 500,000 loans in trial modifications — it’s unknown how many are in Orange County.

Since HAMP was announced in spring, loans at least 90-days late in the county have been increasing, while the ratio of REOs — loans foreclosed but still held by the lender or original investors — has been declining. Here’s a chart courtesy of First American CoreLogic showing the categories as ratios of all outstanding first mortgages in Orange County. (Foreclosure filings are loans with a notice of default and some also with an auction notice.)

: click to enlarge

If the 90-day rise is due to banks and servicers getting folks into trial mods or seeing if they qualify for trial mods, we could see a spike in foreclosures in coming months.

I recently read the trial period has been extended to five months from three months.

Regular blog reader Liar Loan posted this comment on a previous post:

Essentially, Obama’s mods are no income, no documentation during the trial phase. They don’t require documentation until right before the mod is finalized, so the borrower could be in the program for 3-5 months before they have to prove anything. That’s why even though 500,000 trial plans have been started, don’t expect that many mods to close. The fallout rate will be very high for banks that qualified borrowers on stated income. BofA has gotten a lot of heat for not getting more borrowers on trial plans, but they were being smart by requiring full income documentation before a borrower could start a plan with them.

My view is that HAMP is putting a floor on home prices now, but will drag out the time it takes for the market to recover.

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Tracker says:

October 15, 2009 at 8:09 am

So they are making conclusions before the data are in? Is that what this says?

Post Reply

Liar Loan says:

October 15, 2009 at 9:30 am

The data will be very interesting when it gets published. Treasury just extended the trial period to 5 months from 3 months for loans that joined the program during the early months. The extra 2 months are for servicers to gather docs on all the loans that didn’t have income verification up front.

Post Reply
- ghostfaceinvestah says:
  
  October 15, 2009 at 10:34 am
  
  Don’t you think the eventually Treasury will just waive the documentation requirement altogether? Sort of saying, “if a borrower can make payments for five months, that is good enough”?
  
  Not saying that is right, but it would be consistent with the policies of the government to delay the day of reckoning as long as possible.
  
  Post Reply
  - Mathew Padilla says:
    
    October 15, 2009 at 11:20 am
    
    ghost,
    
    I have thought the same thing, and it could happen. However, that would cast a shadow over the capital of participating banks. My understanding is once a mod is final the loan can be again classified as “performing.” Lenders have to reserve against nonperforming assets, in addition to having overall capital requirements. Having a bunch of suspiciously modified loans among performing assets would raise concern among investors and regulators.
    
    Also, imagine a borrower does provide documents but it turns out the borrower has a very high DTI, like 65%. The bank and Treasury could say, hey if the person has been making payments for five months, let’s allow a high DTI. But consumer advocates as well as investors in the banks or mortgage securities might argue the borrower will eventually start missing payments again under such a burden.
    
    But who knows. It’s politics after all.
  - Liar Loan says:
    
    October 15, 2009 at 1:29 pm
    
    ghost-
    That’s the logical outcome considering how political this program is by design.
    
    You have a program designed by Treasury, with Fannie Mae, a failed lender, charged with implementing it. Then you have Freddie Mac, another failed lender, charged with being the auditor. Think about how insane that is. Would you hire Ameriquest to implement a program and New Century to be the auditor?
    
    The problem with Fannie and Freddie when they were private companies was the inherent conflict of interest between shareholders and Congress. Well now there is no conflict of interest because Treasury controls both. They are nothing more than puppets for the Obama administration.
    
    If Obama doesn’t like the numbers coming out, which he won’t, then don’t be surprised to see drastic and even more intrusive changes made to the program.
  - Modguy says:
    
    October 15, 2009 at 7:22 pm
    
    I hope so! Please!!
    
    I have 200 of these crazy, mixed-up HAMP mods in my pipeline (all stages from not-yet-reviewed to in-trial-phase), and the majority of them no one knows what to do. Can’t verify income, etc.
    
    I hate HAMP. We were doing fine, ’til the gov’t stuck their nose in… So much paperwork, so many “guidelines”!!!
  - Liar Loan says:
    
    October 16, 2009 at 9:39 am
    
    Modguy-
    I feel your pain. Banks & servicers are being forced to participate in HAMP, but they could be closing thousands more mods if this program was not getting in the way. It’s all about taking political credit for “saving the housing market”. In essence, the entire loan industry has been socialized and profit is a smaller concern than keeping the government happy.
- BeyondTheMargin.net says:
  
  October 15, 2009 at 10:41 am
  
  The government’s policies have been inclined to socialize mortgage losses by refinancing existing mortgages (some likely securitized into CMOs and some into Fannie/Freddie backed paper) into government guaranteed programs (such as FHA). We are basically continuing to bailout the banks and investors while collectively assuming the risk for eventual default and loan losses. All of this manipulation is a horrible policy and, as suggested in the article above, is just postponing evenutal defauls. If they are extending it to 5 months they are probably just postponing the inevitable.
  
  http://www.beyondthemargin.net/2009/09/keynesian-economics.html
  
  Post Reply

SC2 says:

October 15, 2009 at 8:16 am

NEW YORK (CNNMoney.com) — Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday.

Orange County Register