After more than a year in action, the Home Affordable Modification Program (HAMP) is showing improvement on redefaults. But that improvement will turn out to be brief, and the details demonstrate how little impact the expensive program can ultimately have.
Redefault occurs when a delinquent borrower works with a bank to change the terms of a mortgage, but then after some period of time stops making payments again. It occurs in half of all modified loans, and the alarming rate of redefaults prompts interventionists to call for more generous principal-reduction loan mods – the idea being that if you give enough money to demonstrated bad borrowers, eventually they will become responsible.
(T)he direct quarter-by-quarter comparisons show a definite comedown in delinquencies at the six-month mark -- though the change is substantial only for deadbeats who got haircuts of 20 percent or more.
But dig a little deeper into the report and you will see how little meaning there is in a time frame of less than six months. Even loans that received the most charitable modifications start redefaulting at higher rates once you get out to a year or more, with most categories over 50 percent redefault rates at the 12-month mark. The category of de jure government-guaranteed loans (In effect, all mortgages are now government guaranteed) has a whopping 64.8 percent redefault rate. Overall, 49.7 percent of all modified loans are back in default within a year.
HAMP is only a $75 billion program. So where is the money going to come from? And when will they stop claiming that taking money from taxpayers (the vast majority of whom have never been late on a mortgage payment) and giving it to deadbeats and stupid banks does anything but drag out the problem?
Read the entire article: Reason
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