Despite the extensive and lengthy process required to modify mortgages in default so that borrowers could afford their payments, most will default again in a year or less, according to Fitch Ratings.
Fitch projects that 65 percent to 75 percent of subprime and Alt-A loans that have been modified will default again within a year. Fifty-five to 65 percent of all prime loans will default. Approximately 15 percent of all modified residential mortgages have received at least one additional modification when the first failed.
Since HAMP (Home Affordable Modification Program) was launched early last year, approximately 15 percent of all mortgages have received either a HAMP or non-HAMP loan modification through May 2010. Almost 35 percent of subprime loans have received at least one modification.
The results are falling far short of HAMP’s completed modification goals thus far. In addition, Treasury-imposed changes to HAMP will continue to impact future progress, according to Fitch Managing Director Diane Pendley. ‘With servicers now required by HAMP to re-analyze and re-work borrowers, final determination of the program’s ultimate effectiveness will continue to be delayed,’ said Pendley.
Looking forward, guidelines and programs continue to change, while potential new moratoriums are threatened and mandated mediations are becoming more widely required. As such, ‘Many distressed mortgage loans, including modified loans, will not see a final resolution until well into 2012,’ said Pendley.