Government Foreclosure Prevention Effort Continues to Wane

Mortgage modifications through the government's HAMP foreclosure prevention program continued to trickle in during November. During the month, around 30,000 modifications were made permanent. That brings the total active permanent modifications to just over 500,000. Considering how slow new modifications are coming in, it's pretty clear that the program meant to prevent three to four million foreclosures will be lucky to stop even get to one million.

Here's a chart summarizing the program's performance over the past 19 months:

Let's start with trial modifications started (yellow line). Those peaked at nearly 160,000 in October 2009, but have declined ever since. There have been fewer than 30,000 for seven months straight.

The performance of modifications made permanent (green line) isn't much better. They peaked some time ago, in April 2010. They also pretty steadily declined from there, though they increased a bit in November to around 30,000 after bottoming out at 24,000 in October. With so few active and new trial modifications, it will be harder for this number to increase from here on out.

The somewhat good news is that cancellations (red) have hit their lowest level in several months. Just 18,000 modifications were cancelled in November. This is probably mostly due to servicers finally having worked through most of their backlog of "aged trials," which were modifications that were active for an extended period without being cancelled or made permanent. Many of those were ultimately cancelled, however, which is why there was a flood of cancellations from March through July. According to November's HAMP report, there are fewer than 50,000 aged trial modifications in servciers' backlog.

So where does the program go from here? Foreclosures are expected to continue in relatively high numbers, despite the program appearing to be winding down. At this point, most of the universe of struggling homeowners eligible for HAMP have probably tried to secure a mortgage modification. Others may have chosen to obtain a private modification from their bank, utilized a different government assistance program, or failed to escape foreclosure.

The Treasury program could also benefit from the principal reduction effort announced earlier this year. Yet, it's a little unclear whether banks and servicers have decided to embrace this new aspect of HAMP. The Treasury still isn't releasing any data on the progress of this initiative, but perhaps we'll get some of that additional data in the 2011.