9/26/2010

The failed Home Affordable Modification Program

Home prices continue to fall. People make a lot of the increase in sales in August, but that is just a partial rebound from the horrendous drop in July. Still all this shows that the government mortgage guarantees are not riskless and there is no guarantee that the government will get its money back.

The median price for a U.S. home fell 1.9% in August compared with July to $178,600, a 0.8% increase from August 2009, the National Assn. of Realtors said Thursday.

"The reality is that home buying activity is still at an incredibly low level and will only increase modestly from here," said Paul Dales, U.S. economist with the research firm Capital Economics. "Home sales were only able to rise by this much in August because they had fallen so far in the months after the home buyer tax credit expired."

Previously owned homes sold at a seasonally adjusted annual rate of 4.13 million units in August from an upwardly revised 3.84 million in July. That pace remains 19% below the August 2009 pace.

The market for previously owned homes fell off a cliff in July, with sales dropping 27% to the lowest level in more than a decade after the boost from the popular federal tax credit evaporated.

Sales of single-family homes, which make up the bulk of the market, rose 7.4% from July to a seasonally adjusted annual rate of 3.62 million units. That pace was still 19.2% below August 2009. . . .


Half of those who received help from the HAMP program still ended up in default. Note that taxpayers are going to be on the hook for these defaults.

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months. . . .


Half dropped out of the program:

More than half of the 1.3million homeowners initially helped by the Obamaadministration's marquee foreclosure prevention program havesince dropped out, the Treasury Department said Wednesday.

About 53,000 borrowers dropped out of the Home AffordableModification Program, or HAMP, in August, putting the totalnumber of dropouts at roughly 683,000.

That is about 51 percent of the roughly 1.3 millionborrowers who started in the program since its March 2009inception.

The dropout rate was also up from a 48.1 percent ratethrough July and underlined the continuing distress felt byhomeowners facing falling prices and rising foreclosure rates. . . .


The program hasn't meet its goals:

With the news on September 16 that the number of American homes lost to foreclosure is up 25 percent on the year, one naturally turns an inquisitive eye to the efficacy of President Obama’s key tool in combating this crisis—the Home Affordable Modification Program (HAMP).

When I look at the performance audits of the HAMP performed by the Government Accountability Office (GAO), the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the Congressional Oversight Panel (COP), I find a program that has underwhelmed and underperformed, especially when compared to its stated goals and the size of the crisis we face.

When HAMP began, the Department of the Treasury outlined a goal to help between three and four million homeowners avoid foreclosure and stay in their homes. Unfortunately, but unsurprisingly, this big-government solution has not come close to hitting its target. Through more than a year of HAMP, the Administration has only offered 1.3 million trial modifications and a shockingly inefficient number of those trial modifications remain actively permanent (less than 500,000, through June 2010, according to the GAO). To put this number in perspective, over 338,000 homes were subject to foreclosure filings in August 2010 alone. . . . .

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1 Comments:

Blogger Parag said...

The sicknesses of the property market are excess liquidity, low real interest rates and the lack of investment alternatives. These structural problems are causing constant worry of a bubble and unless they are resolved, everything else is just a band-aid.
Falling home prices

9/27/2010 6:50 AM  

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