Calculated Risk

About 299,000 modifications are now “permanent”, and 277,000 trial modification 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 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 slowest pace since the program started, probably because of two factors: 1) servicers are now pre-qualifying borrowers, and 2) servicers are running out of eligible borrowers. The program is dying …

On page 6 is some new data. Not surprisingly the servicers who verified income before starting a trial modification have a much higher conversion rate than servicers that allowed borrowers to state their income.

Debt-to-income ratios worsen

If we look at the HAMP program stats (see page 5), 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. Do they have a life?

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

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.

Report Highlights
Almost 300,000 Borrowers Granted Permanent Modifications, An Increase of 68,000

• Borrowers in permanent modifications are experiencing a median payment reduction of 36%, more than $500 per month.

• Over 68,000 trial modifications converted to permanent modifications in April, an increase of almost 13% from March.

Servicers Begin to Require Upfront Documentation

• In order to comply with Treasury guidelines that take effect on June 1, in March 2010, servicers began collecting upfront documentation from borrowers prior to initiating new trial modifications.

• Treasury is monitoring servicer performance closely to ensure that borrower demand is met and that servicers are reviewing modification requests in a timely manner.

Servicers Provide Resolutions to Borrowers Who Entered Trials Before January 1, 2010

• Common causes of cancellations include missed trial payments and incomplete or unverifiable documentation.

New This Month: Conversion Rates By Servicer

• Servicers show wide variation in conversion rates as measured against trials eligible to convert.

• Servicers who started trials with verified documents generally posted higher conversion rates than servicers who allowed borrowers to enter trials with stated income. With recent Treasury guidance, all servicers are now verifying borrower documents before trial start.

• Using stated income upon trial starts, the four largest participating servicers have conversion rates below 30%.

New This Month: Aged Trial Modifications by Servicer

• Servicers show wide variation in completing timely decisions on trial modifications.

Making Home Affordable Program Servicer Performance Report Through April 2010
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