Private Loan Modifications Dominate

By:: Kara Johnson | November 19, 2010

Government-backed mortgage loan modifications continued to decline in October, even as lenders increased the number of proprietary modifications conducted on their own terms.

The monthly housing scorecard and report on the Making Home Affordable Program (MHA), released late Thursday by the Treasury Department, showed that only 26,100 new trial loan modifications were approved in October, down from 35,300 in September and one lowest monthly rates since the program began.

Meanwhile, private lenders are increasingly taking loan modifications into their own hands, approving nearly 120,000 proprietary modifications in September, the most recent month for which data was reported, up from 116,000 in August.

All told, lender have approved nearly 1.8 million proprietary loan modifications since MHA was launched in spring 2009, compared to 1.4 million trial modifications under MHA, of which 520,000 have been made permanent.

Approximately 156,000 homeowners remain in MHA trial modifications, while data from the eight largest mortgage servicers suggest that about 40 percent of the 720,000 cancelled trial modifications ended up with proprietary modifications.

Steady decline in government-backed modifications

Trial loan modifications under MHA were running at more than 100,000 a month one year ago, but have shown marked declines since last spring, as program guidelines were clarified and stricter documentation requirements imposed. Meanwhile, private modifications have increased markedly and more frequently grant reductions in monthly mortgage payments, as is required under MHA, according to figures from the HOPE NOW coalition, an industry/consumer group.

Many of those who were granted trial modifications in the early months of the MHA program were unable to qualify for permanent modifications. The program has since moved more toward a state of equilibrium, with nearly 24,000 permanent modifications approved in October, slightly fewer than the number of trial modifications begun.

The Housing Scorecard also reports that approximately 1 million residential mortgages were refinanced in the third quarter of the year, taking advantage of historically low interest rates. The Treasury Department reports that low interest rates have enabled homeowners to refinance 8.3 million mortgages since April 2009, resulting in $15.2 billion in annual savings to borrowers.

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