More Failed HAMP Trials End In Foreclosure

Mortgage servicers are putting more failed Home Affordable Modification Program trials through foreclosure than these folks twelve months ago.

According to Treasury Department data released last week, 10.6% of the more that 615,000 canceled HAMP trials completed the foreclosure process since Nov. 1. That’s more than double the 4.4% of failed HAMP trials foreclosed on since November 2010.

While foreclosures are increasing, alternative modifications on these loans are dropping. Of the canceled HAMP trials, 39.7% experienced the bank’s own private programs, down from 45.4% over the same time period, based on Treasury data.

Foreclosure completions as a percentage of borrowers never accepted into HAMP trials are lower but still increasing as well. Of the 1.8 million borrowers denied a HAMP trial, 7.6% completed the foreclosure process as of Nov. 1, up from 5% one year before.

Roughly 26.5% of those borrowers received alternative modifications, which held flat during the last year.

The increase in more foreclosure completions on failed HAMP trials occurred at virtually every large servicing shop taking part in this program. Citigroup (C: 30.74 -2.72%) saw the highest jump. Of the 71,808 HAMP trials it canceled, roughly 13.5% completed the foreclosure process as of Nov. 1, up from 3.1% one year ago.

At Ally Financial (GJM: 21.32 -0.28%), the percentage increased to 12.8% from 6.4% covering the same period. At JPMorgan Chase, the increase went to 11.3% from 6.2%. And at Bank of America (BAC: 6.61 -2.65%), the largest servicer in the program, 9.3% of failed HAMP trials experienced foreclosure compared to just 1.9% 12 months before.

The highest percentage is currently held by OneWest Bank. It foreclosed on a lot more than 19% of its roughly 20,000 failed HAMP trials, up from 10% last year.

Interestingly, Wells Fargo (WFC: 29.61 0.00%) has among the lowest percentages of completed foreclosures on these mods at 6.7%, almost the very same percentage one year before.

This is seen as a sign servicers are both skirting poorer performing private modification programs or the data is starting to reflect these higher redefault rates.

According to the Office of the Comptroller of the Currency, 17% of the 108,000 HAMP modifications began in the second quarter of 2010 went 60 or more days delinquent within 12 months. That’s compared to a 31% redefault rate for other private programs.

D. Corwyn Jackson, whose company The Corwyn Group helps to train housing counselors for foreclosure prevention, said servicers are getting mixed signals from the government-sponsored enterprises Fannie Mae, which administers HAMP, Freddie Mac and other stakeholders across the nation.

“The servicers are mandated to stick to the agreed upon foreclosure time lines by state,” Jackson said. “But other stakeholders such as nonprofit housing counseling agencies across the nation are asking for servicers throughout the negotiation to exhaust their loan workout options before starting the foreclosure process.”

The GSEs charge servicers for taking too long to complete the foreclosure process under specific, state-by-state guidelines. Servicers are expected to still consider the borrower for the GSE programs, but time is of the essence. BofA, for example had to pay Fannie and Freddie $1.3 billion in foreclosure delay penalties in the first nine months of 2011.

GSE policies and the failed HAMP trial foreclosure rates is beginning to show in the overall economy. Over the same time period covered by the Treasury data, the shadow inventory of homes in foreclosure or on the verge it has been declining. In accordance with CoreLogic (CLGX: 13.48 -0.96%), roughly 1.6 million homes sit within this inventory, down from 2.1 million in November 2010.



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