Barclays Capital has taken a fresh look at the Home Affordability Modification Program and has come away with a new perspective on home loan modifications. They can work — if the borrower isn’t exactly in dire straits.
That’s not good news for struggling homeowners who, for one financial reason or another, just can’t make their home mortgage payments. Recent numbers from HAMP administrators show “extremely low conversion rates” from trial home loan modifications to permanent modifications. Moody’s Investors Services estimates that, currently, a successful home loan modification scenario is, at best, a 50-50 bet.
The numbers back that up. HAMP says that through April 30, it had successfully converted 300,000 permanent U.S. home loan modifications, but had canceled 277,640 trial modifications. To be fair, not every canceled loan modification is a failure. Some struggling homeowners regain their financial balance after a layoff or other hardship and resume making their mortgage payments in full once again. But most canceled loan modifications have a sad, but simple reason: the homeowners just don’t have enough money to pay their mortgages.
Says Moody’s in a recent analyst report on HAMP efforts; “We believe the low conversion rate is a combination of two issues: borrowers failed to provide the documents they promised, and the rate reduction and principal forbearance used under HAMP were not enough to motivate severely underwater borrowers to start paying again,”
Thus, it’s not hard to see how Barclay’s Capital draws a conclusion that loan modification candidates, who have demonstrated some ability to pay their mortgage and who aren’t “severely” underwater on their mortgages, represent the best prospects for HAMP success stories.
How do you describe “better” HAMP candidates? Barclays says that those homeowners who struggled along and kept making payments as long as possible before falling behind, can actually benefit best from the HAMP program. “