Finally Some Mortgage Modifications Are Actually Beginning To Work

The Treasury has released the latest data from the big mortgage modification effort, and actually… things are getting a little better.

RBS breaks down a few key details from the report:

* The permanent modifications comprise 11.6% of the cumulative HAMP total since inception. In addition, servicers have also approved a further 76,000 loans for permanent modifications, out of the loans currently identified as on trial period. These modifications could become permanent pending borrower acceptance, bringing the total permanent modifications approved by servicers to 193,302 or 19.2% of the cumulative HAMP total since inception, up from 12.5% in December. The percentage of loans that have reached permanent modification therefore far exceeds the share that have dropped out of the program to date, though this relationship will likely change as re-default rates increase with time after permanent modification.

* Assuming that the GSE/private-label distribution holds true for loans that have been permanently modified, that would result in almost 40,000 private-label loans that have been permanently modified, most over the past two month. We should therefore expect cure rates in nonagencies to show improvement, as approximately $10 bln of securitized loans return to current status. In agencies, the permanent modifications should increase buyout-related prepayments for loans in MBS pools that have not already been bought out in their trial phase or due to their delinquent status.
* The cumulative modifications started represent 28% of the 3.4 million loans that are estimated to be both eligible and currently 60-day plus delinquent as of January. This estimate of 3.4 million comprises delinquent loans from participating servicers that are conforming balance mortgages (excluding FHA/VA), owner-occupied, and originated before January 1, 2009. Yet after adjusting for loans that have failed the NPV test or have not met the 31% DTI requirement, the report indicates that only 1.7 million currently delinquent borrowers are left eligible for HAMP, with cumulative modifications started representing 59% of that total.
* All permanent modifications include interest rate reductions, as required in the waterfall process. 42% of the permanent mods also include term extension, while 27% include principal forbearance. The permanent mods have brought median front end debt-to-income ratios to 31% from 45%, as required by the HAMP program, while back-end DTIs have been reduced to 60% from 76%, still relatively high in our opinion.

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