By: Carrie Bay
Earlier this week, the Treasury Department released its monthly progress report on the government’s Home Affordable Modification Program (HAMP). Included in the Treasury’s latest installment is a new section detailing the performance of loans permanently modified through the HAMP initiative.
In commentary published Wednesday, analysts at the research firm Barclays Capital took issue with the Treasury’s calculations of redefault rates, primarily because the numbers appear to be cooked to imply greater success since cancelled modifications – both trial and permanent – are not factored into the equation. This same point was brought up by a number of DSNews.com readers who also perused the data with a discerning eye.
“We find that the data as reported in this table are misleading and fail to capture the full magnitude of redefaults from these modifications,” Barclays said.
According to Treasury’s assessments, the redefault rate (90 or more days past due) for homeowners in permanent modifications for at least six months is 1.7 percent. The report states that fewer than 6 percent of the permanently modified loans at the six-month mark are 60 days past due.
Treasury’s table outlining the performance status of modified loans, on page 3 of the HAMP progress report, shows loans that are 60-plus and 90-plus days delinquent at the end of 3,6, and 9 months by quarter of modification. The report also states that 8,628 loans have been cancelled from the permanent HAMP modification stage due to the borrower’s failure to fulfil payment obligations. Digging farther into the delinquency buckets, Barclays estimates that 8,205 permanently modified loans have fallen behind on the payments by at least 60 days.
“We believe that the total number of loans that have gone bad after the permanent mod stage is probably closer to the 60-plus loans estimated above, plus the cancelled permanent modifications, which more than doubles the absolute number from 8,205 to 16,833 bad loans,” Barclays’ analysts wrote. “The report does not contain enough information to allow us to calculate true redefault rates by quarter of modification, but we would expect them to exceed the level reported” by the Treasury, Barclays said.
The research firm also says it can be argued that to measure redefault rates more accurately and make them comparable with pre-HAMP redefault rates, the Treasury should include trial cancellations related to non-payments.
According to Barclays, adding back in trial failures and redefaults on other alternative mods offered to HAMP applicants could increase the redefault rates by 25-30 percentage points.
Barclays says the reporting of mod performance in the HAMP scorecard takes the tradeoff of mod rates vs. redefault rates to an extreme. Removing 90-plus permanent mods from the delinquency calculation and basing the calculation only on successful modifications makes the redefault rates look too low, the research firm explained.
The analysts at Barclays say their opinion is that the data presented by Treasury continue down the same path by taking deeply delinquent borrowers out of the performance calculation and showing lower delinquency rates as a result.
“Given the nature of reporting available for most HAMP mods in loan performance, where only permanent mods are reported, we find that a more consistent approach is to use mod rates based on permanent mods and redefaults from permanent mods,” Barclays wrote.
“On that definition, we believe that our base case expectation of about 60 percent lifetime redefaults on HAMP are still adequate,” the analysts wrote, although they noted that overall redefaults from HAMP “will be better than from prior mods.”
A recent study by Fitch Ratings makes projections along those same lines. The agency is expecting HAMP-modified loans to redefault at a rate of 55 to 75 percent.
23. July 2010 at 5:23 AM
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