Total Denials Exceed Permanent Loan Modifications

By:: Kirk Haverkamp | June 21, 2010

Nearly half of all borrowers denied permanent loan modifications under the Making Home Affordable Program (MHAP) have been able to arrange for alternative modifications through their lenders, the government announced today.

At the same time, the number of borrowers denied permanent loan modifications under the program took another big jump in May and now exceeds the number of permanent modifications granted. New enrollments continued to fall as well, to their lowest monthly total since the program began.

According the May MHAP report released this morning, nearly 430,000 borrowers have exited the program after being unable to obtain permanent loan modifications, up from 278,000 the previous month. By contrast, the program has 345,000 permanent loan modifications underway, an increase of 50,000 from the April figures.

Meanwhile, only 30,000 new trial loan modifications were begun in May, the lowest monthly total since the program began a little over a year ago. A total of 1.2 million trial modifications have begun since the program started, with 468,000 now underway.

The number of borrowers exiting the program has risen sharply in recent months as loan servicers worked through a backlog of borrowers in trial modifications waiting to be approved or denied for permanent status. It appears that many of those able to qualify for permanent modifications were approved fairly quickly, so the rejections are now catching up.

However, it appears that many of those who were rejected have been able to make other arrangements with their lenders. According to today’s report, out of 194,000 trial modifications cancelled by the eight largest loan servicers through April 2010, 95,000 borrowers – nearly half - have been able to enter into alternative modifications with their lenders.

Of the remainder, roughly 9 percent are in foreclosure or going through a short sale, while 11 percent are either current on their loan or have paid the mortgage off. About one-quarter of the total has an action pending.

The May MHAP report was incorporated into a new monthly scorecard on the housing market unveiled today by HUD and the Treasury Department. In addition to the monthly MHAP data, the scorecard will report key housing indicators and other information on the health of the housing market.

Among the highlights in today’s scorecard, the government reported that nearly 2.8 million homeowners have obtained restructured mortgages since April 2009. That figure includes the 1.2 million MHAP trial modifications and 400,000 FHA loss mitigation efforts, as well as private lender loan modifications.

It also notes that low interest rates have enabled more than 6 million homeowners to refinance their homes, at an estimated average savings of $150 a month, and that 2.5 million families have been able to purchase homes for the first time using the First Time Homebuyer Tax Credit.

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