Almost Half of the Modified Mortgage Redefault - Surprised?

Written by Posted On Sunday, 22 September 2013 13:43

Roughly 50% of homeowners with modified mortgages redefault and billions and billions of tax payer dollars continue to go up in smoke. Despite critics calling for a stop or at least a reassessment of the program, money continues to flow. And the FHA just made it much easier for “damaged” buyers to get right back in the mix, reducing the wait time from three years to one. Is there any question that Washington will do whatever it takes to prop up the housing market?

Nearly half of the US homeowners who had their loans modified under a government aid program are now defaulting again on their mortgages at an alarming rate, according to a recent report. The Special Inspector General for the Troubled Asset Relief Program (SIGTARP), said that around 865,100 homeowners have avoided foreclosure with the help of The Home Affordable Modification Program, also known as HAMP, through loan modifications. However, more than 306,000 other homeowners had redefaulted on their modified mortgages as of April, the report added.

HAMP was set up to help struggling homeowners avoid foreclosure by working with their lenders to lower monthly mortgage payments. The Obama administration launched HAMP in 2009 to aid struggling homeowners impacted by the housing crisis. Some call it an undeserved handout to owners not all that concerned with saving their homes; others say more needs to be done.

“This is a program where there’s not enough people being helped,” Christy Romero, special inspector general for SIGTARP, told Reuters. ”Exactly why people are falling out of HAMP isn’t well understood by Treasury,” said Romero. “If redefaults are happening at an alarming rate, then you’ve got to stop that and change the program somehow where you stop the trend.”

It would seem that simple economics would apply; don’t spend dollars when you earn dimes. That is likely a main reason “why people are falling out of HAMP” and it would seem that the best way to stop the trend is to foreclose and have those owners live within their means. Washington is about the only place where a program with a 50% failure rate and billions of wasted dollars would continue.

But Washington is not content pouring money into a program with less than marginal results, they are encouraging lenders to loosen the restrictive guidelines on home buyers; anything to keep the housing bounce going. This has worked with FHA effective this month. Previously, borrowers who experienced a foreclosure had to wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier. Borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday. For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

So that covers the “strategic default” or other fiscal maneuvering that many do to simply avoid paying? Seems like it’s getting smarter to just walkaway from financial obligations as opposed to struggling and trying to honor them. Many have asked “what’s the point”…what’s the answer to that question?

Hank Miller, SRA
Associate Broker & Certified Appraiser
Atlanta Communities Real Estate
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Hank Miller, SRA

Hank Miller is an Associate Broker & Certified Appraiser in the north metro Atlanta area. Since 1989, real estate has been his full time profession. Hank´s clients benefit from his appraisal and sales experience; they act upon data, not baseless opinions. He is an outspoken critic of the lax standards in the agent community.

Hank remains an active certified appraiser and completes specialty work for FNMA, lenders and attorneys. He is a well-known blogger and continues to guest write for multiple industry publications as well as national outlets like the WSJ, NYT, RE Magazine, USA Today and others. He is a regular on public Q&A sites on Zillow, Trulia and many others.

Hank consistently ranks in the top 1% of all agents in the metro Atlanta area. He runs the Hank Miller Team and is known as much for his ability as he is for his opinions. He is especially outspoken about the lack of professional standards and expectations in the real estate industry.

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