A university study claims some provisions of the new government-subsidized modification program will lead to fewer re-defaults. Several service providers have sprouted up in anticipation of helping servicers, investors and borrowers make the most of the government's massive program.
A working paper from the University of North Carolina at Chapel Hill's Center for Community Capital said there is little evidence about the effectiveness of loan modifications and suggested many modified loans become delinquent again. A big factor in the success of modifications is the reduction in payment -- as is required in the Home Affordable Modification Program. Modifications that reduce payments by 35 percent reduce the chance of re-default by 18 percent.
"The results suggest that among the different types of modifications, the principal forgiveness modification has the lowest re-default rate," the authors wrote. "We believe that this is because it addresses both the short-term issue of mortgage payment affordability and the longer-term problem of negative equity."
A reduction in principal results in even lower re-default rates, as does early intervention, according to the report -- which was based on an analysis of 10,000 subprime adjustable-rate mortgages that were modified. Local economic conditions also impact the success of modifications.
Modifications were completed in the fourth quarter on 23,777 loans owned or guaranteed by Fannie Mae and Freddie Mac, the Federal Housing Finance Agency reported. Activity jumped from 13,488 modifications in the third quarter. During just December, 8,688 modifications were completed.
FHFA Director James B. Lockhart III told attendees today at the Women in Housing and Finance Symposium in Washington, D.C., about his opposition to cramdowns -- though the agency has taken no official position on the issue. He said more than 3,000 servicers are participating in the government's $75 billion modification program -- which is expected to impact several million mortgages.
In a bulletin last week, Freddie said the modification program would run through Dec. 31, 2012, and was immediately eligible for qualified mortgages originated on or before Jan.1. The program replaced the streamlined modification program announced in December.
Eligible borrowers must be current but face imminent default, and they need to maintain a front-end debt-to-income ratio of 31 percent, Freddie said. The program includes a trial period and incentives for servicers, investors and borrowers.
A Michigan conference from June 11 through June 14 for the American Bankruptcy Institute is expected to include a debate on whether bankruptcy judges should have authority to modify residential mortgages. Also on the agenda is a session about whether chapter 13 bankruptcy cases should be considered a success because a discharge is obtained.
ABI -- whose 12,000 members include lenders, attorneys, judges and other bankruptcy professionals -- is also holding a mortgage Webinar at 12:30 p.m. ET on April 24 about mortgage modification legislation.
A new offering from CGI Group Inc. will increase a servicer's capacity to complete loan modifications, a statement last week said. The Homeowner Affordability and Stability Plan is expected to generate up to 4 million modifications, and the Fairfax, Va.-based firm said its services will help companies deal with the expected surge of activity.
CGI said a mortgage and credit staff supports the offering.
A Home Affordable Modification module has been added to Response Analytics' distressed portfolio management solution, a statement earlier this month said. The module is pre-configured to comply with all eligibility requirements, the net present value test and standard waterfall and modification rules.
The Mortgage Cadence Orchestrator platform has been adapted to automatically handle loan modifications, the company said Monday. The platform's rules engine and workflow technology allows for automated analysis.
First Capital Loan Mod hopes to capture loan modification prospects with a press release today calling for borrowers to investigate their eligibility under the government's plan. The firm claims servicers "are slowly coming to their senses" and seeing how modifications are a less expensive alternative than REO.
First Capital issued a similar news release earlier this month.
America 1st Support Services hopes to lure loan modification prospects with a low-cost loan modification kit announced last week. The Costa Mesa, Calif.-based firm claims that the kit helps borrowers avoid costly mistakes and attorney fees of as much as $4,000.
Mortgage Modification Legal Network said last week that Dr. Wayne Angell was appointed to its board of advisors. The statement said Angell is a former member of the Board of Governors at the Federal Reserve.
The growth of loan modification companies in the Phoenix area is expected to fuel a surge in suspicious activity reports to the Federal Bureau of Investigation, the Phoenix Business Journal reported.