Private Loans Modifications Continue Briskly

Roughly two-thirds of the more than 1 million homeowners who have obtained permanent mortgage loan modifications this year did so outside of the government’s Home Affordable Modification Program (HAMP), according to a new report.

Through the end of July, nearly 760,000 homeowners have obtained private mortgage loan modifications through their lenders so far this year, according to figures from the Hope Now Alliance. Another 368,000 were approved for permanent loan modifications under HAMP.

The figures reflect the increasingly dominant role that private loan modifications are playing in helping at-risk homeowners avoid foreclosure, despite the public attention being given to HAMP. In July alone, there were 120,000 proprietary permanent modifications completed, versus less than 37,000 under HAMP.

“The industry continues to make progress in assisting large numbers of borrowers who are at risk of foreclosure,” said Faith Schwartz, senior advisor to Hope Now. “Our data this year shows some positive trends, including a high percentage of proprietary mods that include reductions of monthly principal and interest payments.”

Mortgage delinquencies down 20 percent

In addition, mortgage delinquencies of 60 days or more were reported to have declined 20 percent since the first of the year, to 3.3 million, including a 5 percent drop in July.

At the same time, both new foreclosures and foreclosure sales rose sharply during the month. Foreclosure starts were up 22 percent for the month, to nearly 227,000 properties, while foreclosure sales were up 12 percent to 98,000.

“We did see an increase in foreclosure starts and sales,” Schwartz said. “We believe this is a function of borrowers moving through the pipeline of all eligible program offerings (government and private industry) to exhaust all alternatives. The increase in foreclosures is also a reflection of the continued challenges facing the economy, particularly the level of unemployment nationwide.”

Private mods more flexible for lenders

Private loan modifications have been outpacing HAMP modifications in large part because lenders have more flexibility in the terms they offer and who they will accept than under the government program. Many of those approved for private modifications are borrowers who were previously in HAMP trial modifications but were denied permanent status.

HAMP has also played a role in prodding lenders to reduce borrower’s monthly payments when modifying loans. A total of 86 percent of proprietary modifications completed in July reduced a borrower’s monthly mortgage payments, compared to only 56 percent in all of 2008, based on figures from HOPE NOW and the State Foreclosure Prevention Working Group.

Previously, many private loan modifications actually increased a borrower’s payments by rolling past-due balances and interest into them. HAMP, established in April 2009, requires that all modifications performed under its terms reduce a borrower’s monthly payments to make them more affordable.