Gov’t Loan Mods Fare Better Than Private

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Privately managed loan modifications are defaulting more regularly than those modified through President Obama’s Home Affordable Modification Program, according to a federal report released Friday.

The report, issued by the U.S. Office of the Comptroller of the Currency and the Office of Thrift Supervision, found that 22.4% of the adjustments made through the private sector were 60 or more days delinquent sixth months after the modification. Comparatively speaking, 10.8% of loans modified through the HAMP program were past due in the same time period.

When evaluated three months later, 10.5% of HAMP modifications made in the first quarter of 2010 were 60 or more days delinquent compared with 11.6% of the other modifications made in that quarter.

The discrepancy relates to the fact that HAMP modifications reduce monthly mortgage payments by a greater amount. According to the report, modifications made during the first quarter through HAMP were reduced by an average of $608. Other modifications made during the quarter only reduced payments by an average of $307. In total, the modifications made during the second quarter reduced monthly principal and interest payments by an average of $427.

The OCC, a bureau of the Treasury Department, regulates both national banks, and the federal branches and agencies of foreign banks. The report covers 34 million mortgages, representing 65% of all first-lien mortgages in the country modified in the fourth quarter of 2009.

The HAMP program was started as part of the Financial Stability Act of 2009 in an effort to help some of the estimated 7 to 8 million homeowners at risk of foreclosure by working with lenders to lower their monthly mortgage payments. Under HAMP, eligible borrowers can have their monthly payments lowered to 31% of their pre-tax income as long as it’s more profitable for the bank to modify the loan than foreclose.

When the government initially rolled out the HAMP program, it estimated that 3 to 4 million people would receive assistance. However, since then the program has received criticism for not being as effective as planned. As previously reported, during the past year HAMP has provided 295,348 borrowers a permanent modification to help lower their current monthly payments.

According to the report, during the last quarter, almost 109,000 permanent modifications and 65,000 new trial period plans were implemented under the HAMP program. New modifications numbered 273,000, an 18% increase from the previous quarter.

Regardless of whether or not the HAMP program has succeeded in scope, this is not the first time that the OCC found government loan modifications are better than the alternatives.

Their first-quarter report  similarly found that privately fewer than 17% of home loans modified under HAMP had missed at least one monthly payment and about 8% had fallen behind on two payments. Conversely, about 25% of privately-managed loan modification programs were 30 days overdue while about 10% were past due beyond 60 days.

How can you get a loan modification through the HAMP program? Check out this MainStreet article for tips.

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