About 347 thousand modifications are now “permanent” – up from 299 thousand last month – and 430 thousand trial modifications have been cancelled – up sharply from 277 thousand last month.
According to HAMP, there are 467,672 “active trials”, down from 637,353 last month. However if we add the trials started since December (5 months!), there should only be 300,000 thousand borrowers in trial programs. That means there is still a huge number of borrowers in limbo, but with all the cancellations, the number is declining.
The second graph shows the cumulative HAMP trial programs started.
Notice that the pace of new trial modifications has slowed sharply from over 150,000 in September to just over 30,000 in May (down from 47,160 in April 2010). This is the slowest pace since the program started, probably because of two factors: 1) servicers are now pre-qualifying borrowers, and 2) servicers are running out of eligible borrowers. The program continues to slow down …
Debt-to-income ratios worsen
If we look at the HAMP program stats (see page 5), the median front end DTI (debt to income) before modification was 44.8% – about the same as last month. And the back end DTI was an astounding 79.8 (down slightly from 80.2% last month).
Think about that for a second: for the median borrower, about 80% of the borrower’s income went to servicing debt. And it is almost 64% after the modification.
And that is the median – and just imagine the characteristics of the borrowers who can’t be converted!
- A large number of trial programs were cancelled (finally). This will mean more foreclosures (or short sales) in the near future.
- A large number of borrowers are still in modification limbo. We should expect another 150 thousand cancellations pretty quickly (maybe in June).
- The program is slowing down quickly (only 30,000 new trials started in May).
- The borrowers DTI characteristics are poor – suggesting a high redefault rate over the next year or two.