Only a tiny percentage of troubled homeowners have received permanent modifications under President Obama's Home Affordable Modification Program (HAMP), raising concerns about the effectiveness of the $75 billion effort.  Fewer than 5% of the trial modifications on loans owned or guaranteed by Freddie Mac were converted to long-term adjustments as of Sept. 30.  More broadly, the figures are even lower. As of Sept. 1, only 1.26% of all trial adjustments were made permanent after three months, reported the Congressional Oversight Panel, which monitors the government's use of bailout funds.  The preliminary data, which has not been widely reported, underscores the next big problem facing the government's effort: Officials have leaned on banks to offer more homeowners trial modifications, but the real test will be whether homeowners will receive lasting help. 

"No one is really sure why the conversion rate is so low," said Mike Zoller, assistant economist at Moody's Economy.com. "We're concerned these loans will eventually become foreclosures."  Guy Cecela, publisher of Inside Mortgage Finance, a trade publication, says, "Everyone is going to be shocked at the low conversion rates from trial modifications to permanent modifications."  The president's program "won't result in a significant number of loans being modified and won't put a significant dent in foreclosure rates."

In a lead story, the Wall Street Journal (WSJ) paints a dismal picture of the housing market in 2010.  Uncertainty over the extension of a home-buyer tax credit sent new-home starts in October crashing down a full 10.6% from September, and starts of single-family houses fell 6.8%.   That's the lowest level since April, the Commerce Department said. This news suggests that foreclosures are not only going to keep rolling in, but that they may actually increase.  Richard Dugas,  chief executive of Pulte Homes Inc., the nation's largest home builder, warned investors: "As we look out to 2010, we are expecting difficult conditions to continue."  Wednesday's data prompted some economists to revise their fourth-quarter forecasts down slightly. Macroeconomic Advisers moved its GDP estimate down to 3% from 3.2% and Nomura Securities predicts 3.4% growth, down from 3.6%. The data adds to the suggestion "that the recovery is a little bit rickety," said Zach Pandl, an economist from Nomu

 ra.  Given that 3.4% of U.S. households -- or about 1.9 million homeowners -- are 120 days or more overdue on their payments, and that millions of homes are expected to go through foreclosure over the next few years, adding to supply, it's a fair bet that foreclosure problem won't be gone anytime soon.

Mortgage rates at record lows

 Freddie Macs weekly survey of average interest rates put the 30-year fixed-rate mortgage (FRM) at 4.83% with an average 0.7 points for the week ending Nov. 12, down from the average rate of 4.91% the previous week. Thats a mere 5 basis points shy of Freddie Macs record low of 30-year FRM rates, reached twice in April this year. Last year, the rate was 6.04%.  Freddie Mac put the 15-year FRM at 4.32% with an average 0.6 points, down from last weeks 4.4% and the lowest rate for the product since Freddie Mac began its 15-year FRM survey in 1991. A year ago, the average rate for the loan was 5.73%.  Bankrate.coms survey of large US banks and thrifts put the 30-year FRM at 5.06%, the lowest in the surveys 24-year history and down 13 basis points from the previous week. The previous low on the Bankrate survey was 5.13% in April. Bankrate.com put the average rate for a 15-year FRM at 4.48%, down 13 basis points from the previous week.  Low fixed rates throughout

  the third quarter prompted an estimated $1.1 trillion in refinancing activity, saving homeowners about $10 billion in aggregate monthly payments over the first 12 months of their new loan, said Freddie Mac vice president and chief economist Frank Nothaft. Moreover, for the fourth consecutive quarter, more than 95% of prime borrowers who originally had an ARM selected a conventional fixed-rate mortgage in the third quarter of this year

Why are foreclosures up?

 Jay Brinkmann, MBAs Chief Economist, says it's jobs.  Despite the recession ending in mid-summer, the decline in mortgage performance continues.  Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP.  Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07% to 1.42%.  Brinkmann says it's prime and FHA mortgages that are taking the worst beating.  Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures.  33% of foreclosures started in the third quarter were on prime fixed-rate and loans and those loans were 44% of the quarterly increase in foreclosures.  The foreclosure numbers for prime fixed-rate loans wi  ll get worse because those loans represented 54% of the quarterly increase in loans 90 days or more past due but not yet in foreclosure.  The performance of prime adjustable rate loans, which include pay-option ARMs in the MBA survey, continue to deteriorate with the foreclosure rate on those loans for the first time exceeding the rate for subprime fixed-rate loans.  In contrast, both subprime fixed-rate and subprime adjustable rate loans saw decreases in foreclosures."

Foreclosures hit record highs

 According to the Mortgage Bankers Associations (MBA) National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64% of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago.  The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86% in the second quarter of 2009 to 9.94% this quarter.   The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the third quarter was 4.47%, an increase of 17 basis points from the second quarter of 2009 and 150 basis points from one year ago. The combined percentage of loans in foreclosure or at least one payment past due was 14.41% on a non-seasonally adjusted basis, the hi

 ghest ever recorded in the MBA delinquency survey.  The percentage of loans on which foreclosure actions were started during the third quarter was 1.42%, up six basis points from last quarter and up 35 basis points from one year ago.  The percentages of loans 90 days or more past due, loans in foreclosure, and foreclosures started all set new record highs.  The percentage of loans 30 days past due is still below the record set in the second quarter of 1985.