Late last week it was acknowledged by the Obama administration that it had underestimated the vast number of homeowners who fell seriously behind on their mortgage payments despite the fact that they had received government help with their mortgages.
An error was blamed on the mortgage finance giant Fannie Mae by Treasury officials which currently act as the programs administrator for President Barack Obama's $50 billion Home Affordable Modification Program.
The H.A.M.P. program has been widely criticized for its overly optimistic estimates regarding the number of borrowers who were helped by its subsidies of new mortgage terms. The total number of permanent modifications that have lasted at least nine months up to the end of this past May is extremely small totaling just 4,764 borrowers. Furthermore, an additional 53,000 borrowers had loan modifications for at least six months through May.
The Treasury Department reported that only about 14.9 percent of the 4,764 borrowers who have had a permanent mortgage modification for at least nine months to the end of May had once again re-defaulted on their loan which is more than six times the 2.4 percent rate that the Treasury reported on July 20th.
Re-defaults are defined as homeowners who are 90 days or more late on their modified mortgage. Of the permanently modified mortgages that lasted for at least six months, about 6.1 percent had re-defaulted, which is up from just 1.7 originally estimated by the Treasury.
The number of borrowers whose loans are 60 days late and not quite yet in re-default is even higher.
Of the loans that have been permanently modified for at least nine months, close to 20 percent of those loans were at least two months behind on their payments which is more than two and a half times the 7.7 percent rate first reported.
Permanently modified loans that lasted six months, of those, 10 percent were 60 days or more behind on their mortgage payments which is close to double to the originally reported 5.9 percent.
Treasury spokesman Mark Paustenbach said, "We are confident that this data table correctly reflects the performance of the permanent modifications over time. Early program results indicate that the vast majority who receive permanent modifications through HAMP benefit from them and remain in the program."
Wall Street analysts felt that the numbers the Treasury Department first issued seemed too low and at that point suspicion arose. It was then that the Treasury Department asked Fannie Mae to once again review their numbers.
Brian Faith, a Fannie Mae spokesman, said that his company found "an issue in its implementation of the delinquency statistic methodology."
He went on to say that, "Fannie Mae has now corrected the implementation and validated the revised table through review and verification by an independent third-party consultant contracted by Fannie Mae's Internal Audit Group."
On July 20th the Treasury reported that the number of borrowers dropping out the program grew at almost twice the pace of those getting a permanent modification in June and those numbers have not been revised.
This large dropout rate could be a sign of foreclosures beginning to rise in the second half of 2010. The housing market is still very fragile and some analysts fear another housing slump could threaten the economic recovery.
In June close to 91,000 borrowers dropped out of the program which brings the total number of dropouts to 530,000. While at the same time, about 50,000 borrowers received a permanent modification this past June which brings that total to about 390,000.
More than 40 percent who have started in the program since its March 2009 inception, close to 1.3 million borrowers, have since dropped out.