The Home Affordable Modification Program continues to putter along this month, with numbers of active trial and permanent modifications in the Chicago region staying largely level (see our previous analyses). There were 32,997 active modifications in the region in October 2010, up 0.36 percent from last month’s 32,880. However, new data from Treasury shows that the large number of homeowners who have been dropped from HAMP—at least 18,000 in the Chicago region—are not yet losing their homes in large numbers.
Permanent modifications continue to grow increasingly slowly and trial modifications are still dropping, though October marked the end of the six-month streak of double-digit decreases in active trial modifications. Chicago region permanent loan modifications rose by 3.1 percent from September to October, compared to 6.6 percent growth from July to August and 4.1 percent growth from August to September (see charts A and B). Regional trial modifications fell by 7.4 percent from September to October, which is less severe than the 14.1 percent decrease from August to September.
Chicago region trends continue to mirror national patterns. Nationally, trial modifications dropped by 9.9 percent from September to October and permanent modifications grew by 3.6 percent. Nationally, total modification activity fell by 0.1 percent from September to October.
Active modifications are not dropping because of a lack of need for help—indeed, Treasury estimates that there are still nearly 1.5 million eligible borrowers and nearly 3 million eligible loans. The numbers are likely falling due to a recent Treasury requirement to collect full income documentation before starting a trial modification. Additionally, Treasury reports this month that the top reason that modifications are cancelled is insufficient documentation. Given widespread reports of documents repeatedly lost by servicers, this reason raises questions about whether the program is turning away large numbers of otherwise eligible borrowers. A new report from Housing Action Illinois tracks the outcomes of 661 counseling cases in the Chicago region and finds serious miscommunication from servicers, recommending that the government take bigger steps to hold servicers accountable for not working with borrowers in a timely or accurate manner.
Treasury released new data this month that illustrates what happens to borrowers after their trial modification has been cancelled (see the chart below from Calculated Risk for a breakdown). Thus far, only 3.9 percent of borrowers have lost their home to foreclosure, while 8.5 percent have lost their home through a deed-in-lieu of foreclosure or a short sale. Another 15 percent are in the process of a foreclosure or bankruptcy and will likely lose their homes, and 19.7 percent are in the limbo of “action pending.” This means that at least half of cancelled trial modifications have avoided losing their homes for the time being. However, 41.3 percent of cancelled trials ended up in servicers’ private modification programs, in which there is no guarantee that monthly payments are sustainable. Private modifications are twice as likely to re-default as HAMP modifications, meaning that more borrowers with private modifications are likely to enter foreclosure than borrowers with HAMP modifications.
It’s clear that the status quo is insufficient to adequately combat foreclosures. Regulators must push for deeper modifications that include principal write-downs. That option should also be available to homeowners in bankruptcy. Finally, we need better information on the features and outcomes of private loan modifications so we can better assess their potential impact on the foreclosure crisis.
Compared to the 10 metropolitan areas with the highest HAMP activity, Chicago is fifth in terms of percentage of all active HAMP modifications that are permanent, with permanent modifications comprising 75.8 percent of all active modifications. This is higher than the national average of 75.6 percent of all active modifications being permanent (see charts C and D below).
Within the context of continually decreasing numbers of active modifications, however, this ratio does not indicate how well metropolitan regions are performing in terms of converting trial to permanent modifications. For instance, at least 18,000 modifications in the Chicago region have been cancelled since the February peak of 51,301 active modifications. The ratio of permanent to all active trial modifications continues to increase by virtue of the decreasing number of all active modifications. Since Treasury does not currently release regional data on all modifications that have been started (including those that have been cancelled), we cannot accurately assess the Chicago region’s conversion rate.