HAMP Redefault Rate Higher Than Initially Reported

The plane has crashed into the mountain!

Recently the government issued a report to let us know how mortgages that were modified by the Home Affordable Modification Program (HAMP) were performing.  This may shock you, but it turns out the information they gave us was not entirely accurate.

When the report came out, it claimed that about 6 percent of HAMP borrowers were 60 days or more delinquent on their mortgages six months after they were modified.  For many analysts, this number did not pass the smell test because it did not jibe with some older numbers from previous reports:  in March 2010, the delinquency rate after six months was 7.7 percent.  During the last quarter of 2009, the rate was 11.3 percent.

After many commentators declared shenanigans on the report, it was discovered there were discrepancies in the way delinquent homeowners were being classified which lead to some error in the numbers.  The Treasury Department is blaming the mistake on Fannie Mae, which runs HAMP.

The Treasury Department issued the following statement:

“Since the Making Home Affordable report was posted on July 20th, Fannie Mae, which administers the program, has reported to Treasury an issue in its implementation of the delinquency statistic methodology used to report performance of permanent modifications. Fannie Mae is now revising the data, and Treasury has retained a third-party consultant to provide additional review and validation. Upon completion of that independent review, a revised table will be provided.”

As of right now, no updated re-default figures have been released.

HAMP was originally supposed to provide mortgage relief for 3 to 4 million borrowers.  1.3 million borrowers have been enrolled in the program.  Approximately 530,000 borrowers have left the program, and 390,000 have received permanent modifications.  The remainder are waiting for modification.  So more people have left the program than have had their mortgages modified.

The Office of Management and Budget projects that HAMP will cost $49 billion.  The Congressional Budget Office estimates that HAMP will cost $22 billion. The discrepancy between the two is apparently due to different economic projections.  Either way, HAMP is costing a lot of money, and has been extremely ineffective.

According to economists at Fitch Ratings, 75 percent of HAMP modifications will eventually re-default.  Barclay’s is slightly more optimistic, they believe that only 60 percent will re-default.

At what point do we pull the plug on this disaster?  Let us know in the comments section below.