Growth in the number of permanent modification continues to slow, while August saw the fifth straight month of double-digit decreases in active trial modifications. Chicago region permanent loan modifications rose by 6.6 percent from July to August, compared to 14.8 percent growth from May to June and 9 percent growth from June to July (see charts A and B). Regional trial modifications fell by 21 percent from July to August, which is less severe than the 29.8 percent decrease from June to July. Total modification activity in the Chicago region fell by 3.6 percent from July to August, a slight improvement over the 9 percent decrease from June to July.
Chicago region trends echo national patterns. Trial modifications also dropped by 21 percent from July to August, and permanent modifications grew by 6.4 percent—slightly less than the 6.6 percent growth in the Chicago region. Nationally, total modification activity fell by 3.9 percent from July to August.
As we noted in past months, the falling numbers of active modifications are likely due in part to the fact that many servicers did not require full income documentation before starting a trial modification; borrowers who do not qualify based on income are now being dropped from the program. Additionally, Treasury now requires that all servicers collect full income documentation before starting a trial modification, likely slowing the rate of new trial modifications.
Treasury does release data on the number of trial modifications that have been cancelled on a national level. Of the 1.3 million borrowers that started trial modifications, more than half did not qualify for permanent modifications. ProPublica reports that the most common reason borrowers were denied permanent modifications was that the servicer reported that the homeowner did not submit all the necessary documents—this was the case in 28 percent of cancellations, or 160,382 cases. However, homeowners and housing counselors have struggled with unresponsive servicers who have repeatedly lost documents, raising questions of who is really at fault for the large number of incomplete applications. Worryingly, servicers did not report any reason for cancellation in 12 percent of cases, or 67,913 cases.
On the brighter side, new data from federal bank regulators indicate that HAMP modifications may be more sustainable in the long run than private, proprietary modifications. At 6 months after modification, proprietary modifications were twice as likely to be 60 days delinquent as HAMP modifications–only 10.8 percent of HAMP modifications from the fourth quarter of 2009 were in default, compared with 22.4 percent of proprietary modifications. Regulators note that “lower early post-modification delinquency rates may reflect HAMP’s emphasis on the affordability of monthly payments and the requirements to verify income and complete a successful trial period.”
Compared to the 10 metropolitan areas with the highest HAMP activity, Chicago is fourth in terms of percentage of all active HAMP modifications that are permanent, with permanent modifications comprising 69.8 percent of all active modifications. This is higher than the national average of 68.9 percent of all active modifications being permanent (see charts C and D below).
However, within the context of continually decreasing numbers of active modifications, this ratio does not indicate how well metropolitan regions are performing in terms of converting trial to permanent modifications. For instance, at least 18,000 modifications in the Chicago region have been cancelled since the February peak of 51,301 active modifications. The ratio of permanent to all active trial modifications continues to increase by virtue of the decreasing number of all active modifications. Since Treasury does not currently release regional data on all modifications that have been started (including those that have been cancelled), we cannot accurately assess the Chicago region’s conversion rate.