COP April 2010 Report - Foreclosures

A new Congressional Oversight Panel report states what we and others have been writing for months, the Treasury's HAMP program to keep people out of foreclosures isn't working.

The crisis is not yet showing signs of abating. - Elizabeth Warren

This is our usual politically judicious report, making sure to blast Treasury without stepping on their toes, but we can obtain some more facts on foreclosures.

In 2009, 2.8 million homeowners received a foreclosure notice, and nearly one in four homeowners with a mortgage currently has negative equity.

Negative equity of 25% means they owe 25% more than the house is worth. That's a lot!

There are 6 million homeowners currently 60 days or greater behind in their mortgage payments.

HAMP only helped 9% of troubled home loans. The other 91% went into foreclosure.

Here is the crux of the problem. HAMP doesn't reduce the total principle amount of the mortgage and here is the result:

HAMP typically does not reduce the total principal balance of a mortgage, meaning that a borrower who was underwater before receiving a HAMP modification will likely remain underwater afterward. Many borrowers will eventually re-default and face foreclosure.

Then, the debt to income ratio is still 59% of those in HAMP. Also the HAMP program only reduces payments for up to 5 years.

It seems there is no real incentive for banks to reduce principle and it's accounting rules that are identified as a culprit.

Depository institutions that own mortgages are generally reluctant to take write-downs because doing so requires them to boost their regulatory capital ratios, which hurts both their ability to make new loans and their profitability.

The new announced mortgage modification programs by Treasury will not take effect until 2011.

The sum total of announced funding for Treasury's individual foreclosure programs exceeds the total amount set aside for foreclosure prevention. Treasury (believe this or not) is using Fannie Mae administration and Freddie Mac for program implementation compliance, but has not released details. Yes, both Freddie Mac and Fannie Mae also have mortgages applying to the Treasury programs, i.e. they are overseers and also customers if you will.

Treasury has still not disclosed the framework of procedures or performance metrics, specific compliance data, or the results of performance metrics by lenders/servicers.

The Panel recommendations are fairly vague, in my opinion and nowhere is require principle reductions listed as one.

Here is the full report (pdf, 230 pgs.) and here is the the overview. There are numerous statistical graphs in the 230 page report, but use your PDF search button, it's wordy.

To read more details on HAMP is hopeless, see here, here and here.



CRE deliquency rate way up

Commercial Mortgages:

he delinquency rate for commercial mortgage-backed securities posted its largest increase ever in March, Moody's Investors Service reported Wednesday, blaming most of the gain from the collapse of a $5.4 billion housing deal in New York.

The ratings agency said that the rate rose 69 basis points in March, a $4.3 billion increase as 343 loans became delinquent.

But 45 of the basis points were attributable to the loan for the Peter Cooper Village and Stuyvesant Town housing project in Manhattan. A $3 billion loan for the development moved into delinquency in March.

That's a lot of basis points for one loan!