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Tidbits, Facts & Updates
Re-Default Rates: Re-default rates are rising for most. American Home Mortgage with its aggressive principal reduction program has seen a lowering of its re-default rates to some 20% while the industry average is hovering around 45-60%. The IndyMac modification model was hopeful as a national model but the FDIC projects that 30% of the restructured loans will re-default. More than 50% of the “modified” loans in 2008 will re-default within 6 months (Office of the Comptroller of the Currency). “There should be national standards for servicers to follow, but it’s not by itself the answer,” says Economy.com’s Mark Zandi. He thinks the FDIC is on the right track but needs to change much of the program to make it suitable for wider use. “Mortgage lenders and homeowners won’t take advantage of the program unless principal write-downs are shouldered at least in part by taxpayers.” Forbes, Desmond, Feb 10, 2009. First American Loan Performance data shows that principal reduction itself is not the determining factor in reducing the re-default rate. However, lowering the monthly “payment” sufficiently by whatever means (i.e.: Interest Rate, 40 year term extensions, Principal Reductions, etc.) will greatly reduce the re-default rate. Both modifications with principal reductions of some 10 or 20% had re-default rates of 30% or 28% within 6 months, respectively. However, when payments decreased by 20% or more the re-default rate was only 21%. When payments were lowered only 10-20% the re-default rate was 49%. Fitch Ratings reports that servicers are expanding their loan modification programs to include principal reductions.
GSE Litigation Waivers: The Streamlined Loan Modification program brought with it homeowner waivers buried in its requirements. These litigation waivers required homeowners to sign away their rights to sue including predatory lending rights, in return for a acceptance into the program. Rep. Barney Frank (D-Mass.) has objected to such practices. Frank was quoted as saying: “I can pretty much guarantee you that we will have put an end to that within a few days.” Fannie Mae and Freddie Mac have discontinued the waivers.
Streamlined Modification Program: Treasury Guidance on the Home Affordable Modification Program (HAMP) effectively discontinued the streamlined modification program. Freddie Mac announced that HAMP replaced the streamlined modification program. ยท Replaces the Streamlined Modification Program. Freddie Mac announced on March 4, 2009 in its Single Family Advisory, that HAMP: Reduces the monthly mortgage payment to no greater than 31 percent of the borrower's gross monthly household income; Requires free HUD-approved counseling for borrowers with monthly total debt-to-income ratios equal to or greater than 55 percent; Provides incentives to borrowers and Servicers for successful modifications and ongoing timely payments.
Hope for Homeowners (H4H) Short Refinance Program: The initial H4H program is widely regarded as a failure. “Less than two months after the program’s unveiling, however, application totals for H4H were dismal – fewer than 100, according to reports.” Efforts to revise it are under way including H.R. 384. (Servicing Management Feb. 2009 “Reinventing H4H: Can Further Tweaks Encourage Participation?” All Rights Reserved Richard Rydstrom 2009 |