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The settlement’s monitor, former North Carolina Banking Commissioner Joseph A. Smith noted, “a significant increase,” in consumer complaints in the second half of 2012.

In a February 2013 report he reported 5,700 consumer complaints submitted to his office, about half of which related to problems with loan modifications or customer service.

The banks have extended close to $46 billion in gross relief to more than 550,000 borrowers under the settlement so far, according to the Office of Mortgage Settlement Oversight. Thousands of borrowers have had their mortgage principal slashed under the settlement, which should reduce future delinquencies. Negative equity is a primary driver of new delinquencies, a fact all too clear in a new report Monday from Lender Processing Services.

“Looking at the March data, we see that borrowers with equity are actually outperforming the national average—at 0.6 percent, this group is quite close to pre-crisis norms,” said Herb Blecher of LPS Applied Analytics, which released the delinquency report Monday.

(Read More: Housing Recovery Shows Up In Job Gains)

“The further underwater a borrower gets, the higher those problem rates rise. Borrowers with loan-to-value (LTV) ratios of just 100-110 percent are actually defaulting at more than twice the national average. For those 50 percent or more underwater, we see new problem rates of 4 percent.”

Article source: http://www.cnbc.com/id/100710946

Treasury’s data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program. As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at a rate of 46.1 percent and 39.1 percent. HAMP permanent modifications from 2010 also had high redefault rates, ranging from 28.9 percent to 37.6 percent.

The report directs Treasury to study why these modifications are failing and to come up with some kind of early warning system in order to help borrowers.

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“Redefaulted HAMP modifications often inflict great harm on already struggling homeowners when any amounts previously modified suddenly come due,” according to the report.

One of the architects of HAMP, Michael Barr, former Assistant Secretary for Financial Institutions at the U.S. Treasury, is not surprised at the numbers.

“The redefault rates are still below current industry averages, and below the conservative case we used in program design, which was the then-existing rate of 50 percent,” said Barr.

Troubles with HAMP are not new. Initially it did not offer principal reduction on loan modifications, and so far, under a revised HAMP, just 82,813 borrowers received any principal reduction. Banks doing their own loan modifications have wiped away far more mortgage principal, a strategy that has proven far better results. The nation’s five largest banks were required to write down some principal under the National Mortgage Servicing Settlement signed in early 2012, after the so-called “robo-signing” foreclosure paperwork scandal.

The Treasury need not look far for HAMP’s shortfalls.

(Read More: Mortgage Mods Doomed by Back End Debt)

Back in May of 2012, bank representatives complained that the back end debt-to-income ratios (DTI), (which include all debts upon which a borrower pays) for HAMP modifications were far too high. That is, borrowers were paying far too much of their incomes on debt, and the numbers were only rising.

At the time, mortgage analyst Mark Hanson said, “A 64.3 percent DTI is so far out of scope with the pre-bubble years safe-and-sound 36 percent total DTI — and even typical bubble-years full-doc DTI’s of 50 percent — it is absolutely irresponsible. Servicers are pushing the envelope with respect to getting people to qualify.”

Today Hanson is the least surprised of anyone at the failure of HAMP modifications. “Because if you look at them structurally — sky-high DTI, LTV [loan to value] and low credit score — they make legacy Subprime loans look sane.”

Hanson predicts that these bad modifications will come back to bite the banks and the economy.

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“People read headlines that ‘foreclosures are at 2005 levels’ and cheer. I say the high-risk distressed loans and foreclosures are still out there. They have just been called something different by banks and the government and kicked down the road a few years,” says Hanson.

862,000 homeowners are currently in permanent HAMP modifications; 312,000 have defaulted on permanent modifications. In the next two years, many HAMP modifications will re-set to higher interest rates, and that could produce more defaults.

Banks have been doing more modifications on their own, with these proprietary fixes up 55 percent in the fourth quarter of 2012 from the previous year, according to a recent report from the Office of the Comptroller of the Currency. Meanwhile HAMP modifications are down 31 percent for the same period.

Given delays in the foreclosure process in several states, and the risky quality of these early HAMP modifications as well as other proprietary modifications done without principal reduction, it is safe to say foreclosures may rise for a time next year before finally falling back to normal levels in the next three to four years.

As home prices rise, more borrowers will come out from underwater on their mortgages, and that will reduce the risk of new defaults, but the pipeline of distress is still long and far from lean.

Article source: http://www.cnbc.com/id/100674924

(Read More: Economy Faces Slow Growth No Matter Who Wins Election)

“We will ask for greater focus from this administration on ensuring that this regulation coming from so many different regulators is being considered more thoughtfully,” said David Stevens, president and CEO of the Mortgage Bankers Association. The MBA is renewing its call on the President to appoint a federal housing policy coordinator to act as something of a “traffic cop” to ensure “a coordinated housing policy where federal and regulatory agencies are effectively talking to each other” during the rulemaking process.

(Read More:Surprisingly, Obama Won on the Economy)

As for the millions of borrowers who still owe more on their mortgages than their homes are worth, the Obama administration has consistently said it wants to extend mortgage refinancing to take advantage of today’s record low rates. With Democrats still holding the Senate, it seems more likely they could get new legislation on mortgage refinancing, but analysts bet again the removal of Fannie Mae and Freddie Mac’s regulator, Edward DeMarco, who has stood staunchly in the way of lowering mortgage principal.

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