Realty Check

First Look: Inside The $75 Billion Plan to Save Housing

For the first time, today, the U.S. Department of Treasury is releasing the number of trial mortgage modifications in its $75 billion Home Affordable Modification Programthat went permanent.

These would be considered successful mortgage modifications, where the borrower paid the new lower payment for at least three months and submitted all the paperwork (income verification, tax returns, etc.) required and that paperwork was acceptable.

We got a lot of numbers, so I want to put this all in perspective:

So far the 78 banks and servicers in the HAMP, which represent 85 percent of the total mortgage market, have just over 3 million loans on their books that are at least 60 days past due. So they sent out notices to those 3 million borrowers requesting more information.

A lot of those borrowers (as high as 50 percent) didn't respond, according to the banks. Some don't even live in the houses anymore. Gone.

Of those that did respond, just over a million had at least the verbally stated income to qualify for a modification under the program. Others were either not owner-occupants, didn't have the income level, or were unemployed. So 1,032,837 were offered modifications. But only 759,058 modifications were started. Why? Because a lot of the borrowers just didn't want them. They would rather try to sell the house or go into foreclosure and walk away. Remember, some borrowers are so underwater on their loans, that they will never see equity again, so why bother making any modification payment, even if it is affordable.

Realty Check

Of the 759,058 modifications started, 697,026 are still in the three month trial phase. That's when you're supposedly making your monthly payment and gathering all the necessary documentation for the modification. Since the program really kicked into gear over the summer, we didn't have any numbers on how many succeeded in the trial period and went permanent, until today.

Treasury reports that 31,382 trial modifications are now permanent. It also reports, well I had to do the math because they didn't put it on the report, but a spokesperson did independently confirm, that 30,650 modifications were disqualified.

"Presumably, the vast majority were either determined ineligible when all their paperwork came in at the end of three months, or they weren't current on their payments," the Treasury spokesperson told me.

So how do we characterize that?

Is that a 50 percent success rate?

I say that because about the same number of mods went permanent as were disqualified. The Treasury spokesperson said she "wouldn't go that far." Or should we look at the fact that about 6 months into the program (it really started in June), barely 3 percent of the borrowers deemed eligible for government loan modifications are finally in permanent modifications?

Treasury's official release said, "the program is on track to meet its goals over the next several years." Those goals are, "offering 3-4 million homeowners lower mortgage payments through a modification over three years." Treasury officials noted the 31,000 number in the release: "the report shows that servicers have only converted 31,382 modifications to the permanent phase." Note the word "only." But it goes on to say that "servicers need to do their part to help borrowers complete the process and get to the finish line.

Successful program? You tell me.

Questions?  Comments?