The rate of failed modifications under the government’s program is around half, according to one ratings agency.
From January through April, 277,640 modifications started under the Home Affordable Modification Program were canceled by U.S. servicers, Moody’s Investors Service reported today. In addition, 3,744 borrowers were unable or unwilling to make the required on their permanent HAMPs.
Failed HAMP modifications were equal to about half of the permanent modifications converted during the same period.
Moody’s attributed the low conversion rate to borrowers who failed to provide required documentation and borrowers who weren’t motivated by the rate reduction to make payments on their negative equity properties.
“HAMP 2.0 (when it does become effective) will see better conversion rates because it allows principal forgiveness, which is of paramount importance in order to encourage underwater borrowers to start paying again,” Moody’s stated.
The ratings agency noted that 35 percent of HAMP modifications were done on private label securitized loans, and an improvement with these loans — including principal forgiveness — would lower default rates.
