BarCap: HAMP Redefault Rates Are Misleading

Posted by Orb Staff on July 21, 2010 No Comments
Categories : Mortgage Servicing

ir June report on the Home Affordable Modification Program (HAMP), the U.S. Department of Housing and Urban Development and the U.S. Treasury Department may have understated the redefault rates of loans that have been modified, according to a research note from [link=http://www.barcap.com]Barclays Capital[/link]. In a July 21 intra-day commentary on residential credit, Barclays analysts Sandeep Bordia and Jasraj Vaidya write that while they believe overall redefaults from HAMP will be better than those from prior modifications, ‘we find that the data as reportedâ�¦are misleading and fail to capture the full magnitude of redefaults from these modifications.’ The federal report showed that almost 6% of permanent modifications were 60+ days delinquent at the six-month mark, while fewer than 2% of permanent modifications were 90+ days delinquent. A caveat, as pointed out by Bordia and Vaidya, can be located in a footnote in the report, which states, ‘a HAMP permanent modification is canceled for nonpayment if it is more than 90 days delinquent.’ The analysts interpret the footnote to mean that 90+ day delinquent loans are removed from the percentage of delinquent numbers reported. ‘Removing 90+ [day delinquent] permanent mods from the delinquency calculation and basing the calculation only on successful modifications makes the redefault rates look too low,’ Bordia and Vaidya write. The analysts additionally say that their base case expectation of approximately a 60% lifetime redefault rate on HAMP modifications is still adequate. SOURCE: [link=http://www.barcap.com]Barclays Capital

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