In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Wednesday, July 28, 2010

Treasury: HAMP Re-default Rate incorrect

by Calculated Risk on 7/28/2010 10:55:00 AM

Several analysts noted the reported re-default rate appeared too low ... it was.

Shahien Nasiripour at the HuffPo has the story: HAMP Report Revised After Analysts Question New Metric

The Obama administration has revised its latest monthly report on its signature foreclosure-prevention plan, deleting a heavily-criticized performance metric used to measure whether assisted homeowners are re-defaulting on their taxpayer-financed mortgages.
"Subsequent to releasing the report, Treasury received inquiries regarding the calculation methodology used in this table," spokesman Mark Paustenbach said Tuesday. "These inquiries were related to the treatment of modifications that are cancelled from HAMP and ultimately become ineligible for TARP incentives after 90 days delinquency.

"In an effort to review and better explain the methodology, we learned from our program administrator, Fannie Mae, that not all cancelled loans were included in the underlying information provided to Treasury," Paustenbach continued. "The error caused inconsistent reporting of permanent modifications during the snapshots reported. These omissions have impacted our previous analysis... with respect to the performance of HAMP permanent modifications."
In place of the now-deleted table, in a revised report posted Monday to their Web site, Treasury said:

"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 Nasiripour notes, most analysts think a majority of HAMP modifications will eventually re-default. Nasiripour mentions a Fitch analyst's forecast that 75 percent will re-default; Barclays estimates 60 percent.

Last month, the reported median back end DTI1 was 63.7% AFTER modification. That just screams "re-default".

From HAMP: 1 Ratio of total monthly debt payments (including principal and interest on the first mortgage, taxes, insurance, homeowners association and/or condo fees, plus payments on installment debts, junior liens, alimony, car lease payments and investment property payments) to monthly gross income.