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The ultimate success rate of HAMP may be only 2%

A rough calculation using numbers supplied by the Treasury and the Federal Housing Finance Agency suggests HAMP, currently the cornerstone of the government foreclosure prevention programs, is likely to provide successful modifications for only about 2% of seriously delinquent loans.

The Home Affordable Modification Program, HAMP, is aimed mainly at mortgages delinquent 60 or more days.  In its latest progress report Treasury, which administers the program, estimated that there were 5.6 million mortgages delinquent 60+ days.

Not everyone qualifies -- not all servicers participate; only owner-occupied homes are eligible; jumbo non-conforming are not covered; borrowers must be in financial distress, etc.  Treasury estimated that 1.7 million out of the 5.6 million loans were eligible.

The trial period, which has varied to some extent, is meant to be three months.  If we take the number of permanent modifications completed as of the end of January, 117,302, and divide by the cumulative number of trial modifications as of three months earlier, 708,120, we get a completion rate of 17%.  This particular three month period was one of Treasury -- shall we say -- very strongly encouraging the banks, so the completion rate is unlikely to get much better than this.

If we assume, optimistically, that all 1.7 million of the mortgages eligible in Jan result in trial modifications eventually, and apply the 17% completion rate, this would suggest that there might be eventually 289,000 permanent modifications from this cohort.

According to the most recent Federal Housing Finance Agency Foreclosure Prevention and Refinance Report, the percentage of loans remaining current 6 months after modification was 44%.  So perhaps 44% of the 289,000, or 127,000 loans, might avoid re-default.

127,000 is 2% of the 5.6 million seriously delinquent loans. 

All these number will continue to evolve.  However this analysis of the current cohort of seriously delinquent loans strongly suggests that large-scale mortgage modification is very unlikely to significantly reduce the eventual number of forced sales.

Probably the main reasons for low success rates are (1) on the part of lenders, the conflict between the interests of first- and second-lien holders, and (2) on the part of borrowers, that many who have lost most or all of their equity would rather get out than pay off the mortgage, even under easier terms.

(For full details and source material see this reference page on foreclosure mitiation efforts.)

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