Whose Mortgage Is the Government Modifying Anyway?

For a few years now, we've been hearing about the government's mortgage modification program ("HAMP"), but it hasn't been clear who, in particular, is benefiting. Although the program hasn't come near the goals it sought -- to prevent a few million foreclosures -- over a half million Americans have obtained permanent modifications through HAMP. This month, the Treasury provides some data to tell us a little about the Americans who have managed to qualify for its program.

December HAMP Update

But before getting into those statistics and charts, here's the quick update on the program's progress through December:

Last month, the number of new trial modifications started was around 30,000 -- steady at the level we've seen since September. The number of modifications made permanent also appears to be leveling off at around 30,000 per month. Finally, like last month, about 18,000 modifications were canceled. But in December, the ratio shifted to more permanent modifications canceled than trials. Permanent modification cancellations peaked in December at 13,000.

The program also appears to continue to do well in terms of re-defaults. Its rates are steady to what we saw in October through the second quarter. Through November, after one year just 20.4% of modifications were 60 or more days delinquent, and just 15.8% have payments 90 days past due. That might sound like a lot, but re-default rates for mortgage modification programs often exceed 50%, so these results look pretty great -- if they hold up. It's important to remember that many HAMP modifications include terms that have monthly payments reset to higher rates for several years. So we won't know a true re-default rate until as least 2014, but so far so good.

There's not a whole lot of additional analysis to provide here at this point, as the program appears to have become very stable at its rate of growth, which is about a net 12,000 new modifications each month. As of December, the number of active permanent modifications hit 521,630. You can see by these statistics that it's rather unlikely the number of successful modifications will reach one million, however.

Who's Participating?

As mentioned, this month the Treasury provided us a real treat: a glimpse into the Americans that are benefiting form its program. You could argue that it would have been nice for the Treasury to provide this data from the beginning, but better late than never.

Income Distribution

First, here's a chart I re-created based on the income distribution that the Treasury provides. Theirs used income per month, but I thought multiplying the ranges by 12 to show annual income would be more useful for readers:

You can see a clear concentration of income in the $24,001 to $60,000 range, which accounts for 61% of HAMP permanent modifications.

Balance Size

So how big are the mortgages that are being modified? The Treasury provides that info too:

Here, there's a little bit wider of a distribution. The biggest concentration is from $100,001 to $300,000, which accounts for 60% of the balances of permanently modified mortgages. Considering the income concentration, this makes sense.

Payment Reduction

HAMP's weapon of choice to fight foreclosures has been to cut the size of the monthly payments that struggling borrowers must pay. The program generally does this by decreasing the mortgage interest rate and/or increasing the loan's term. Here's the percentage by which monthly payments were reduced by the program for permanent modifications:

It's easy to see that the vast majority -- slightly more than two-thirds -- of program participants have had their monthly payment reduced from between 20% and 60%. That's a pretty significant cut. On a $1,000 initial payment, that would reduce it to between $400 and $800 per month.

Credit Score

What are the borrowing histories like for those getting modifications? It seems like this should be kind of obvious. To qualify for the program, these borrowers must be delinquent. So almost by definition, they must not have the cleanest credit histories. Moreover, borrowers with the most to gain from the program are those who had wacky subprime mortgages with payments that reset at ridiculous interest rates. So you could easily hypothesize that credit scores of program participants wouldn't be too stellar, and you would be right:

You can see that a full 70% of the borrowers would fall into the non-prime category, with credit scores below 620. What's actually somewhat surprising, however, is that a full 19% look to be near-prime, with credit scores above 660.

Race and Ethnicity

It's a little difficult to say much about the statistics the Treasury provides on borrower race and ethnicity, because not all participants provided the information. But about 69% did. Here are the results:

White Americans dominate the permanent modifications, at 32.9%. Hispanic/Latino and Black/African American groups account for 17.7% and 12.1% permanent modifications, respectively. The rest of the modifications are scattered throughout the remaining groups. Of course, it's important to keep in mind that nearly one-third of borrowers failed to disclose race/ethnicity.

Top Metro Areas for HAMP

Finally, which metro areas are using HAMP the most? As you can probably guess, its similar to the list of the cities that have the most foreclosures:

It's important to note that this chart is sorted by % of HAMP modification volume -- not by the concentration of a city's housing market that has benefited from HAMP. Calculating it by HAMP modification density would likely look much different, as smaller cities like Las Vegas and Phoenix could move up significantly on the list. Instead, sheer size matters a lot here. You can see this through New York City and Washington, DC's prominence. Those housing markets haven't seen nearly as much trouble as some of the others on the list, but have prominent places on this ranking.