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With the amount of canceled trial modifications in the Home Affordable Modification Program (HAMP) passing permanent conversions, some are anticipating that the Home Affordable Foreclosure Alternatives (HAFA) program will be more effective in keeping homeowners out of foreclosure.  As you’ll recall, HAFA was designed to give borrowers who failed to make those payments a chance at a short sale or deed-in-lieu of foreclosure.  Based on survey data of the eight largest HAMP participants, the Treasury found that 45% of the canceled trials from HAMP are in an alternate modification. More failed HAMP modifications could enter HAFA after falling into delinquency after the conversion into permanent status.

For modifications that have been permanent for more than six months, 6% have fallen into 60-plus day delinquency again. The default rate, or the percentage of modified loans that are now 90 or more days delinquent, is less than 2% at six months after the conversion. Cary Sternberg, president of Excellen REO, an asset management firm and subsidiary of Titanium Solutions, said that HAMP was designed for those who want to stay in their home, but as prices continue to deteriorate, more homeowners are looking for a way out, either through short sale or deed-in-lieu.  “Then comes HAFA. In recognition of the fact that some borrowers simply could not make payments even if the payment were lower, a more dignified exit strategy was created,” Sternberg said.  “It is too early to tell what the success rate of the HAFA program will be, but I am betting it will be far better than HAMP,” Sternberg said. “HAMP is a Band-Aid, HAFA is an exit strategy.”

Bank of America (BoA) reported $35.7 billion in nonperforming loans, leases and foreclosed properties in Q210 – which is 15% above levels measured in the same quarter of last year.  These loans and properties increased more than $5 billion in total aggregate balance since Q209. The total did drop by more than $200 million worth of these loans and properties from the $35.9 billion reported in Q110.  They represented 3.74% of all outstanding loans, leases and foreclosed properties at the end of Q210.  Since 2008, BofA and the acquired Countrywide completed nearly 650,000 loan modifications. During Q210 alone, BofA completed 80,000 modifications, including 38,000 trial modifications that were converted into permanent workouts under the Home Affordable Modification Program (HAMP).  If a modification does fail, BoA is putting an emphasis on selling the home through a short sale ahead of foreclosure. At REO Expo 2010, Matt Vernon, the short sale and REO executive at BoA said that the bank added 1,000 employees to the short sale staff and will “do everything possible to liquidate property prior to foreclosure.”

Freddie Mac CEO Ed Haldeman said the company has seen the number of its short sales increase 600% from 2008 as lenders look to dampen the impact of foreclosures hitting the marketplace. In a statement put out this week, Haldeman said Freddie Mac is doing everything it can to prevent more foreclosures, and that short sales are becoming an ever-popular tool in situations where foreclosure is imminent and modifications have failed. That number could increase as the Home Affordable Foreclosure Alternatives (HAFA) program takes hold. The Treasury Department launched it in April to provide cash incentives to servicers for conducting short sales and deeds-in-lieu of foreclosure.

RealtyTrac, an online foreclosure marketplace, is even preparing a short sale report to go long with its usual foreclosure report every month. It won’t be available until the end of 2010 however. “Foreclosure alternatives like short sales and deeds-in-lieu help borrowers to avoid the stigma of foreclosure, shorten the waiting period before they can buy a new home, and may inflict less damage on their credit reports,” Haldeman said. While short sales still add to the housing supply and can put pressure on local home values, they often avoid the lack of maintenance or damage foreclosed homes often display. Since the middle of 2008, Freddie Mac reported total losses of $84.4bn, according to its quarterly reports. The company’s plight has forced a directive from the Federal Housing Finance Agency (FHFA), its conservator, to de-list its and Fannie Mae’s common stock from the New York Stock Exchange.

A new government report released Monday shows that more troubled homeowners have fallen out of trial mortgage modifications than have received long-term help  The administration’s signature housing-rescue plan, Home Affordable Modification Program, known as HAMP saw a surge of people leave the initiative in May. More than 152,000 have had their trial adjustments cancelled since the program started, mainly because they could not document their income or because they earned too much to qualify for assistance, officials said.  Nearly 430,000 borrowers have had their trials cancelled — more than one-third of the total started. Servicers place troubled borrowers in trial modifications for several months to verify their income and see whether they can make the lowered payments. More than 70% of  those cancelled this month had been in trial for at least six months.

“The administration’s housing policies, combined with actions of the Fed, have lowered mortgage interest rates, helped stabilize home prices and reduced the rate of foreclosures, repairing some of the damage caused by the financial crisis to the financial security of millions and millions of American families,” said Treasury Secretary Tim Geithner. But a deeper look at the scorecard shows that dark clouds remain over the housing market. Completed foreclosures soared to 93,800 in May, up from 65,000 a year earlier, while delinquency rates for borrowers with the best credit history jumped a full point to 5.9% in the first quarter. Borrowers who owe more than their house is worth rose to 11.3 million in the first quarter, up from 10.2 million a year earlier.  The number of vacant homes held off the market rose to 3.6 million in the first quarter, up from 3.5 million a year earlier. The number of mortgages refinanced in the first quarter fell to 1.17 million, from 1.31 million du
ring the same period in 2009.

Most borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months, according to a report released Wednesday.   Between 65% and 75% of loans that are modified through the Home Affordable Modification Program(HAMP) but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a N.Y.-based credit-rating agency. The main reason these borrowers continue to struggle is that HAMP does nothing to solve the rest of their debt problems, the report added.  ”Many of these borrowers still have very heavy levels of other debt,” said Diane Pendley, a Fitch managing director, “auto loans, credit cards and other expenses.

The HAMP modifications reduce housing expenses down to 31% of income but do not touch these other obligations.”  Currently, according to the Fitch report, about half of prime borrowers who lose their homes now do so through foreclosure. The other 50% go through short sales, in which they sell their homes for less than what they owe the bank, or deed-in-lieu, a transaction where the bank takes back the property directly and forgives the outstanding balance.  The servicers have been encouraged to rev up their short sale engines by the Treasury Department, which runs HAMP and its sister program, Home Affordable Foreclosure Alternatives (HAFA), which provides cash incentives to the parties who agree to short sales.. Now, when borrowers re-default on HAMP mods or other bank workouts, banks are much more likely to offer help to execute a short sale or deed-in-lieu.

Liquidation and modification rates on Countrywide-serviced residential loans have edged higher in the past few months, with a larger percentage of mortgage restructurings encompassing principal forgiveness, according to a study just released by Barclays Capital. The research firm examined loans within residential mortgage-backed securities (RMBS) serviced by Countrywide, now Bank of America Home Loans, and found that while historically, Countrywide-serviced deals have claimed lower-than-average mod rates and long liquidation timelines, that has begun to turn around in the past few months. Barclays reports that constant default rates (CDRs) on pools of mortgages serviced by the once-subprime leader have improved, primarily due to faster roll rates, as well as rejections from Home Affordable Modification Program (HAMP) trials, which allow the loan to proceed to foreclosure.

Analysts at Barclays expect Countrywide’s liquidation rates to continue to increase as more HAMP trials are resolved in the coming months. Many of these resolutions, though, do include transitions to permanent loan restructurings. Barclays says HAMP conversions have also boosted modification rates for Countrywide, and the research firm found that debt forgiveness mods now make up 10 percent of the servicer’s modified loans, up from 0 percent in January. The research firm says it as seen “continuous improvement” in current to delinquent rolls and falling 60-plus day delinquencies. Barclays says there have been important changes in servicer behavior in the Countrywide camp. HAMP rejection rates for Countrywide loans have shot up in the past few months and now constitute 36 percent of all resolved trial mods. According to the Treasury’s latest HAMP progress report, Countrywide/Bank of America is servicing approximately 215,000 active trial mods and has finalized near
ly 57,000 permanent loan restructurings.
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