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HAMP Re-default Rates Higher Than First Reported

July 28, 2010
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The government-backed Home Affordable Modification Program (HAMP) that modifies the mortgages of underwater borrowers to save them from foreclosure is experiencing re-defaults at a higher rate than first reported. That probably means that the rest of us taxpayers will be on the hook for the money.

Huffpo has a piece explaining the details: The program’s rosy numbers looked fishy to experts, and they asked for clarification, and so now the program is going to re-calculate. There is no bottom line—yet. We only know that the reported rates of default—in the range of 6 percent—are incorrect: too low.

HAMP is supposed to save the homes and credit ratings of 4 million struggling homeowners. So far something like 400,000 have received permanent modifications—but more than half of HAMP borrowers get bounced from the program for non-payment. Those people were not counted in the re-default rate.

HAMP is operated by Fannie Mae, the giant, technically insolvent, formerly sort-of private but actually now government-owned mortgage company that taxpayers bailed out way back in September 2008.  Apparently, this game is less about saving deserving homeowners from foreclosure and more about saving undeserving banks from the bad (and uninsured) loans they made by replacing them with almost-as-bad (but fully-insured-by-Uncle-Sugar) loans. Seen this way, the defaults don’t matter—except to the degree that they generate bad publicity.

Calculated Risk spotted the relevant statistic on page 3 of last month’s HAMP progress  report: 63.7 percent. That’s the average debt-to-income ratio HAMP borrowers had after modification. Put another way, two thirds of these borrowers’ before-tax income was slated to pay interest and principle on existing debt. As CR observes, “That just screams ‘re-default.’”

As of June, Maryland had about 25,000 HAMP loans active on either a trial or permanent basis.

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