HOPE NOW, not HAMP, corners loan modification market

by Broderick Perkins

(9/12/2012) - The federal Home Affordable Modification Program (HAMP) isn't your only option for a mortgage modification. In fact it may not be your best option.

More than four out of five mortgage modifications on the books are not HAMP deals but modifications direct from the lender or mortgage servicer - proprietary modifications.

HOPE NOW, a voluntary, private sector mortgage industry alliance, that got a head start on modifications, has racked up 4.62 million modifications since 2007, through July this year, compared to only 1.04 million, through June this year, for the Obama Administration's HAMP program. HAMP only began reporting modifications in 2009.

Surprisingly, in a national election year, the Republican Party hasn't latched onto this - apparently, collaboration in the open market gets the job done better than government intervention.

But then, perhaps not so surprisingly, given the GOP's aloof approach to housing and collaboration.

"HOPE NOW has always been about collaboration, aggressive outreach to borrowers and education on options. Our data, which has been collected monthly for five years, continues to support these activities and our members remain active in helping families find sustainable and realistic mortgage solutions," said Faith Schwartz, HOPE NOW executive director.

A mortgage modification occurs when the lender reworks the terms of an existing home loan, typically to lower payments and make the home more affordable. To get the payment down, mortgage modification lenders lower the interest rate, extend the loan term, reduce the principal or use any combination of those approaches.

During the first six months of 2012 nearly 341,000 homeowners have received proprietary loan modifications, compared to only about 110,000 HAMP modifications. HAMP modifications are only through June, in HOPE NOW's report. Proprietary modifications continue to increase. More than 66,000 homeowners received permanent, proprietary modifications in July, a 43 percent increase over June's approximate 46,000 proprietary modifications.

Proprietary loan modifications not only increase homeowners ability to afford the mortgage, they contain built in sustainability, HOPE NOW reports.

In July:

• Proprietary loan modifications that included fixed interest rates of five years or more accounted for 96 percent of the total modifications. Fixed interest rates takes the guesswork out of the household budget by enabling borrowers to budget for a mortgage payment at a fixed amount each month. • All proprietary loan modifications with both reduced principal and interest accounted for 77 percent of the total. Reduced principal means a smaller balance against which to apply interest. Reduced interest means a smaller payment. Together they build in affordability.

• Proprietary loan modifications with reduced principal and interest payments of more than 10 percent accounted for 71 percent of the total.

Early reports of loan modifications found them to be hastily drawn and prone to failure. Today's proprietary loan modifications are sticking.

HOPE NOW's July data revealed that proprietary loan modifications, with 90 days or more delinquency, hit the lowest level since HOPE NOW began reporting this data.

Re-default rate was at only 8.9 percent of the total loan pool for the month, compared to 10.3 percent for all modified loans as of the end of June.

"Also encouraging was the lower number of re-defaults on loan modifications, which we attribute to the higher percentage of sustainable and realistic solutions being offered to homeowners," said Schwartz.

"It is important to note that HOPE NOW defines re-defaults as loans that are 90 days or more delinquent after six months of completing a modification, using a rolling 18-month inventory of completed modifications," she added.