The Treasury Department has released its latest set of HAMP data for August, and the program is winding down with very few new trial modifications, and less in the system.
We’re up to around 468,000 permanent modifications, but 663,000 trial modifications have been canceled. The conversion rate from trial to permanent modifications is down 26% from July. Only 202,000 borrowers are in “active trials,” 53,000 less than last month. That’s mainly because just 18,000 new trial modifications started in August, as opposed to 150,000 new trial mods a year ago.
These numbers reflect permanent modifications at 15% of the total projected level back in March 2009, when Treasury launched the program. At this rate, they look to fall far short of the expected 3-4 million permanent mods when the program finishes at the end of 2012. Given all the horror stories I’ve heard, maybe it’s good that less people are entering the process, which I have to partially chalk up to a raised awareness of the program’s pitfalls. Private modifications by servicers outside the HAMP program aren’t being tracked, but I suspect they’re picking up, and many consumer advocates said that they can often be as good an option for some borrowers, although the terms are often worse.
Borrowers with permanent modifications average a 36% decrease in their monthly payments, a dollar amount of around $500 a month. But their average debt-to-income ratios even after modification are around 63%, a ridiculously high number that suggests we’re still living with a balance sheet recession, as people try to pay down mountains of debt. In addition, a small percentage of borrowers actually get to a permanent mod, and the process in between is often harrowing and confusing, as well as damaging to a borrower’s credit rating. Borrowers kicked out of HAMP often end up in worse financial position than when they start.
The redefault rate sits at around 3.8%, meaning around 18,000 borrowers re-defaulted even after the permanent modification.
Meanwhile, the fraud inherent in the mortgage system on the way up is complicating foreclosures on the way down. This story from Florida is indicative. I object to the word “mistake” in the headline:
Man’s home sold out from under him in foreclosure mistake
When Jason Grodensky bought his modest Fort Lauderdale home last December, he paid cash. But seven months later, he was surprised to learn that Bank of America had foreclosed on the house, even though Grodensky did not have a mortgage.
Grodensky knew nothing about the foreclosure until July, when he learned that the title to his home had been transferred to a government-backed lender. “I feel like I’m hanging in the wind and I’m scared to death,” said Grodensky. “How did some attorney put through a foreclosure illegally?”
Bank of America has acknowledged the error and will correct it at its own expense, said spokeswoman Jumana Bauwens.
At best, BofA and other banks don’t know who owns what home, because mortgages have been sliced and diced and the titles have become unclear. At worst, they’re running a scheme aligned with foreclosure mill law firms, aimed purely at profiting off of misery. Neither explanation looks very good. And both of them will lead to a serious re-evaluation of all foreclosures in the pipeline. This fraud really is a ticking time bomb.
UPDATE: Existing home sales went up slightly in August, but 19% down year-over-year. The months of supply remains in double digits.