In the Chicago region, the Home Affordable Modification Program (HAMP) continues to put homeowners into permanent modifications, but after several months of steady growth, the rate of new trial and permanent modifications is essentially unchanged nationally and locally.
The Department of the Treasury released its ninth report card on how mortgage lenders are doing modifying loans for eligible homeowners under the government’s Making Home Affordable program (see our previous analyses).
The Chicago metro area is lagging the national average in converting trial modifications to permanent status, but has improved its ranking relative to other metropolitan areas with high HAMP activity. As of March, 22.1% of trial modifications have become permanent in Chicago, while 22.6% of trial modifications have become permanent nationally. Of the top ten metropolitan areas with the most HAMP activity, Chicago is fifth in converting trial to permanent modifications, compared to ninth for the past three months (see charts A and B below).
While the percentage of trial modifications becoming permanent is on the rise in Chicago, the total number of active trial and permanent modifications has slightly decreased by 0.1 percent from 51,301 in February to 51,247 in March. National change in trial and permanent modifications has also stalled, growing by just 0.5 percent from February to March. This pause in growth follows several months of steady increases in new trial and permanent modifications (see charts C and D below).
A number of changes to HAMP guidelines may have contributed to the slowdown in new trial and permanent modifications. Servicers were prevented from cancelling any trial modifications before January 31, 2010, unless the borrower did not meet the property eligibility requirements. Servicers were required to review all pending trial modifications set to expire before January 31 and give borrowers who were not complying with trial modification terms one last chance to comply. Borrowers had until January 31, 2010, or 30 days after receiving notice from their servicers, whichever is later, to correct any deficiencies. The end of this review period likely led to an influx of trial modification cancellations in February and March.
Additionally, Treasury revised HAMP policies regarding documentation requirements for trial modifications. Initially, servicers were able to approve trial modifications based on stated income and needed to collect full borrower documentation before beginning a permanent modification. In response to servicer complaints of the difficulty of collecting documentation during the trial period as well as wasted resources on borrowers who could not meet eligibility requirements, Treasury changed its guidelines on January 28, 2010, to require full documentation before approval of a trial modification. Servicers must implement this guidance by June. While this will likely streamline the conversion of trial modifications to permanent ones, the number of new trial modifications will decrease as ineligible borrowers are screened out in advance.