Fitch Projects Up To 75% Redefault Rate For Modified Subprime, Alt-A Loans

both Home Affordable Modification Program (HAMP) and servicer-specific loan modifications continue to increase, a sizable amount of these loans will default again within a year, according to Fitch Ratings in a new report. Since HAMP's launch early last year, servicers have been making slow but steady progress with modifications under the program. By balance, approximately 15% of all residential mortgage-backed security (RMBS) loans have received either a HAMP or non-HAMP loan modification through May 2010 (up from 10% in September 2009). Additionally, almost 35% of RMBS subprime loans have received at least one modification, compared to 25% over the same time period. However, the results are falling far short of HAMP's completed modification goals thus far. In addition, Treasury-imposed changes to HAMP will continue to impact future progress, according to Managing Director Diane Pendley. ‘With servicers now required by HAMP to re-analyze and re-work borrowers, final determination of the program's ultimate effectiveness will continue to be delayed,’ Pendley says. As a result, Fitch maintains its projection that 65% to 75% of subprime and Alt-A loans that have been modified will default again within a year. The prognosis is slightly lower for prime loans (55%-65%). Approximately 15% of all modified RMBS loans have received at least one additional modification when the first mod failed. What may help the loan resolution landscape over time are short sales, which have increased gradually since the middle of last year, with half of all short sales taking place in California. While this strategy has benefits for the both borrower and the investor, ‘Assets in short sale are in competition with other distressed properties and will result in a borrower losing their home,’ says Pendley. Looking forward, guidelines and programs continue to change, while potential new moratoriums are threatened, and mandated mediations are becoming more widely required. As such, ‘Many distressed mortgage loans, including modified loans, will not see a final resolution until well into 2012,’ Pendley says. SOURCE: [link=]Fitch Ratings


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