Fitch Ratings released a dismal report on the status of the government's Home Affordable Modification Program (HAMP). The report revealed what many of us have already feared and known, loans that were modified are re-defaulting. In what Fitch calls "conservative" estimates, the report states that within 12 months, 55 to 65 percent of the prime loans modified under HAMP guidelines will likely re-default. The numbers get staggeringly higher for modification on subprime and Alt-A loans with a re-default projection of 65 to 75 percent!
The report also states, "Fitch continues to believe that, when properly done, modifications can benefit both homeowners and [residential mortgage] investors. However, modification performance or sustainability continues to be affected by the borrower's desire to keep their property, as well as having sufficient cash flow to make the modified payments.”
Fitch's report just solidifies what America knows, loan modifications don't work and quit spending our tax dollars on them! Unfortunately every homeowner who is facing foreclosure must go through a loan modification qualification before they can skip to a short sale under the HAMP and HAFA guidelines.
Some good news is that currently 50 percent of prime and 35 percent of subprime homeowners facing foreclosure are not seeing thier homes sold by REO sale. That's great news for the short sale market and for homeowner.
It is obvious that homeowners facing foreclosure or are in a distressed situation will not find relief in a loan modification, rather it is only delaying the inevitable and a short sale is the best solution.