Two firms are reporting exceptional performance in helping servicers offer, process and complete loan modifications under the Home Affordable Modification Program. But even after completion, many modifications may still fail.
A recent decline in the number of loan modifications won’t last long, according to Fitch Ratings. As the HAMP was implemented, many modification prospects began the trial period. With those trial periods coming to a conclusion soon — many modifications should be completed.
But Fitch noted servicers are reporting that many borrowers are not providing required documentation and often miss the required trial payment. Fitch attributed the poor performance to borrowers who are saddled with other bills and borrowers with no incentive to keep the home because of negative equity. The ratings agency said it stands behind its projection late last year that as many as three-quarters of defaulted loans will default again within a year.
“What is important to note upon a closer look within this projection is that 11 percent of all RMBS modified loans, including 17 percent of the loans modified in the third quarter, have failed their first mod and have received a second modification,” Fitch said. “With all servicers being directed to use the HAMP modification program as a first step, the effectiveness of the HAMP program figures to be a material outlier as to how successful loan modification as a work-out strategy will be over time.”
Commentary from Ed Pinto, former chief credit officer for Fannie Mae and a self-proclaimed mortgage expert, indicated that HAMP modifications were modeled after the Federal Deposit Insurance Corporation’s “Mod-in-a-Box” used at IndyMac. Based on the performance of those modifications, between one-quarter and 30 percent of HAMP modifications can be expected to re-default after four or so months.
Pinto also noted that the estimated cumulative benefit estimated for Mod-in-a-Box modifications has been cut from 50 percent to 26 percent — decreasing the margin for error and raising the risk that the program could cost more than it saves. He recommended that the government use existing TARP funds to buy some of the more than $1 trillion in poorly performing loans at a discount from the big banks then negotiate principal reductions where appropriate.
E-Z Mod was launched by MOS Group this month to boost its capacity to complete modifications. MOS, also known as Mortgage Outreach Services, claims to be “one of the largest third-party” HAMP service providers. E-Z Mod reportedly boosts transparency on the status of each document and streamlines file tracking and communication. E-Z Mod was developed based on MOS’s experience working with over 90,000 HAMP borrowers since the program launched.
“With the large number of documents required for a full HAMP package and the specific underwriting guidelines needed to meet Treasury Department guidelines, we knew the effective use of technology was a key element for success,” MOS President Greg Hebner said in the statement. “With this level of access to information, what took four, five or even ten or twelve phone calls in the past can often be handled in one or two calls to the borrower.”
Sterling Home Retention Services reported in an Oct. 11 statement that it has successfully prevented foreclosures on 60 percent of the cases assigned. The Orlando, Fla.-based company said the success is a result of its “innovative methods, highly-trained teams of specialists and its technology platform” and the right combination of outsourced services, proprietary contact databases and technology.
Sterling reports that it has contacted 85 percent of the borrowers in its cases, “over double the typical success rate.” In addition, it reportedly has made HAMP offers in more than three-quarters of its cases and collected the required financial information in 80 percent of its cases. Nearly half of Sterling’s HAMP offers have been accepted.
