Some Questions about HASP – Part 2by Tim Manni
Our previous post on President Obama’s Housing Affordability and Stability Plan asked “Will only deserving homeowners get help?”. We pointed out, among other things, that the head of the FDIC acknowledges that “it’s not likely aid will be denied to all homeowners who overstated their income or assets”.
A recent editorial in The Wall Street Journal suggested this possibility even more strongly.
We should make it clear that our skepticism is directed toward the loan modification portion of HASP. The eligibility details for loan mods — which the administration claims could help between three and four million homeowners — will be released tomorrow. (The other side of the HASP coin entails refinancing options for between 5 and 6 million homeowners; we’ll discuss that part later.) We strongly doubt that the final numbers will be anywhere near the administration’s forecasts.
But while we’re waiting for the loan-mod eligibility details, here’s our next question: What is HASP’s “Plan B”?
As we’ve noted elsewhere, the government’s own statistics show that currently 55% of loan mods re-default after 6 months:
Loan modifications continued to grow more quickly than other loss mitigation strategies, as banks and thrifts worked with borrowers to keep them in their homes while minimizing losses. The number of new loan modifications increased 16 percent in the third quarter to more than 133,000.
New in this report are re-default rates on modified loans. The number of loans modified in the first quarter that were 30 or more days delinquent was 37 percent after three months and 55 percent after six months. The number of loans modified in the first quarter that were 60 or more days delinquent was 19 percent at three months and nearly 37 percent after six months.
“One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months,” said Comptroller of the Currency John C. Dugan. “This trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable.”
This is not a promising statistic. HASP is slated to spend $75 billion on the loan-mod portion of its program. If, having spent that money, a significant percentage of the modified mortgages re-default, what’s Plan B? Will those homeowners be allowed to go into foreclosure? Or, like AIG, will we end up bailing them out again… and perhaps again after that? Or will they hope that Congress passes legislation allowing them to seek a cramdown from a bankruptcy judge in hopes of even more assistance?
We’ll be very interested in seeing the details released tomorrow, and whether they have any contingency for anything like the re-default rates reported by the OCC.