Lack of Loan Modifications Could Result In Double-Dip In Housing

Despite the recent housing price gains triggered by the homebuyer credit, HAMP has fallen far short of expectations, leading experts to predict an additional 8% price decline by …

Despite the recent housing price gains triggered by the homebuyer credit, HAMP has fallen far short of expectations, leading experts to predict an additional 8% price decline by the close of 2010. The poor rate of conversion to permanent modification demonstrated by HAMP loans, only adds to the mounting volume of distressed sales which are further eroding market values. See the following article from HousingWire for more on this.

Home prices will likely decline another 8% from Q409 to the end of 2010, reversing recent gains in the market, for a 34% peak-to-trough drop, according to a Moody’s report which faults the “underwhelming” success of the government’s Home Affordable Modification Program (HAMP) as the key driver for the assumption.

To be sure, the updated outlook on the extent of pricing collapses are an improvement from last month, when the analysts predicted prices to fall 37% to a bottom in Q310.

Additionally, the S&P/Case-Shiller US house price index showed a 7% growth in home prices in the second and third quarters of 2009. The National Association of Realtors (NAR) also reports that median existing house price losses narrowed 4.1% in Q409 to $172,900, the smallest decline in more than two years. Moody’s analysts, in fact, anticipate house price increases will prevail in the final quarter of 2009, though they expect the growth to end there, dropping 8% through Q410.

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Coupled with the first-time homebuyer tax credit, declining sales of distressed property – including foreclosures, deed-in-lieu and short sales – fueled the recent price growth. The Home Affordable Modification Program (HAMP) kept some of these foreclosures off of the market, as the US Treasury Department continues to push servicers to permanently modify more loans on the verge of foreclosure. But HAMP will only help so many, according to Moody’s.

Servicers participating in HAMP modified roughly 66,000 mortgages through December 2009, far from the Obama Administration goal of 3-to-4m. Moody’s analysts see the program modifying 400,000 to 1m loans. Recently, the House Committee on Government and Oversight Reform launched an investigation into the effectiveness of HAMP.

“The assumption that the program’s success will remain underwhelming underpins our unchanged expectations that house prices will further decline,” according to the report. “Many of the loans in the program will fail to convert to a permanent modification and will eventually end up on the market as heavily discounted distress sales.”

Determining the actual amounts and timing of distressed sales, however, is hard to pin down due to sparse data, according to the analysts. There is no authoritative source of data for real estate owned (REO) sales to third parties, which muddies the crystal ball for pricing forecasters. The loans that fail to convert to a permanent modification from the three-month trial period will hit the market at different times, given different moratoriums and clogged foreclosure courts.

Despite HAMP shortcomings, the success of private modification programs from lenders could be underestimated. But analysts still see another drop in prices before the market fully bottoms.

This article has been republished from HousingWire. You can also view this article at
HousingWire, a mortgage and real estate news site.


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