Marketwatch: Modified mortgages show ‘alarming’ default trend

Troubled homeowners who received modified mortgages through a federal program are seeing high default rates, a troubling trend that officials inadequately understand, according to an investigator’s report released Wednesday.

The oldest permanent modifications made through the federal Home Affordable Modification Program, which launched in 2009, were redefaulting at a rate of 46.1% as of March 31, according to the report from the special inspector general overseeing the Treasury Department’s efforts to shore up the U.S. financial system. HAMP’s permanent modifications from 2010 have redefault rates ranging from 28.9% to 37.6%.

“The number of homeowners who have redefaulted on a HAMP permanent mortgage modification is increasing at an alarming rate,” the report said. “Treasury’s data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program.”

Unfortunately, Treasury officials have an insufficient understanding of factors behind failures, according to the report.

“Better knowledge of the characteristics of the loan, the homeowners, the servicer, or the modification, more prone to redefault will increase Treasury’s understanding of the underlying problems that cause redefaults and provide Treasury an opportunity to address these issues proactively,” the inspector general said.

HAMP mortgages are modified to lower monthly payments by cutting interest rates and extending terms, among other actions. Servicers and borrowers receive incentive payments through the program.

Unsuccessful modifications have a “devastating effect,” according to the report.

“Redefaulted HAMP modifications on already struggling homeowners when any amounts previously modified suddenly come due,” according to the report. “When the homeowner cannot pay it, they lose their home to foreclosure.”

When Treasury launched HAMP, officials said the program could help 3 million to 4 million at-risk homeowners avoid foreclosure. However, as of March 31, only about 2 million HAMP modifications had been started, and 54% of these have been cancelled, according to the report.

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The Motley Fool: Warren Buffett Shows His Faith in Housing

When Warren Buffett declared that housing was on the rebound last summer, he immediately put his money where his mouth is. His company, Berkshire Hathaway (NYSE: BRK-A )   (NYSE: BRK-B )  partnered with Brookfield Asset Management  (NYSE: BAM)  to create HomeServices of America last fall, which has been busily scooping up real estate brokerages — and recently revealed its new logo as the rebranded Berkshire Hathaway HomeServices.

Gobbling up brokerages left and right The new entity is gearing up to be a national, full-service real estate company and has incorporated its formerly separate Prudential Real Estate and Real Living brands under the new umbrella. The complete unveiling of the new company will continue throughout this year.

Meanwhile, BHHS has been acquiring other real estate companies to extend its reach, adding to purchases it had made early last year of Prudential realty brokerages in Oregon and Georgia. So far this year, it has purchased a large brokerage in California, Guarantee Real Estate, based in Fresno, as well as Prudential Gaslight Realtors near Kansas City, Missouri, in January. The Guarantee acquisition added 400 agents to its base of 53,000, and the purchase of Prudential Georgia Realty in March added another 1,000 salespersons to the company’s roster.

Other housing bets Despite admitting being “dead wrong” about a quick turnaround in housing, Buffett knows that the sector won’t stay in the dumps forever. Berkshire’s portfolio holds other housing investments, such as Benjamin Moore paints, Shaw Carpet, and Acme Brick. Clayton Homes, a manufactured home company owned by Berkshire, saw production jump 13.5% last year over the previous year’s output.


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