Only a tiny percentage of troubled homeowners have received permanent modifications under President Obama's Home Affordable Modification Program (HAMP), raising concerns about the effectiveness of the $75 billion effort. Fewer than 5% of the trial modifications on loans owned or guaranteed by Freddie Mac were converted to long-term adjustments as of Sept. 30. More broadly, the figures are even lower. As of Sept. 1, only 1.26% of all trial adjustments were made permanent after three months, reported the Congressional Oversight Panel, which monitors the government's use of bailout funds. The preliminary data, which has not been widely reported, underscores the next big problem facing the government's effort: Officials have leaned on banks to offer more homeowners trial modifications, but the real test will be whether homeowners will receive lasting help.
"No one is really sure why the conversion rate is so low," said Mike Zoller, assistant economist at Moody's Economy.com. "We're concerned these loans will eventually become foreclosures." Guy Cecela, publisher of Inside Mortgage Finance, a trade publication, says, "Everyone is going to be shocked at the low conversion rates from trial modifications to permanent modifications." The president's program "won't result in a significant number of loans being modified and won't put a significant dent in foreclosure rates."
The primary reason that HAMP or any other modification program has been unsuccessful is due to the fact that it's not in the best interest of the loan servicers. Let's see how the treasury will entice loan servicers in the new Home Affordable Foreclosure Avoidance program that was announced last month.
Sometimes modifications are only delaying the inevitable. Many trial loan mods (not just this effort) never complete due to borrowers inability to consistently pay the first 3 payments during the 90 day trial period.
Also, you are right; there is little incentive for the loan servicers. Hopefully the new effort will change things.
Eric....I touched on this very subject in a post the other day, "Can We Have Our Cake, And Eat It Too? The big issue is that banks stand to do better off with a foreclosure, as they have the property to sell again. A modification just helps the homeowner, not the bank.
After all, this is about helping the banks, not the homeowners right?
I think there is still alot of ugly out there that has yet to surface.....almost scares me to thing about it.