Report shows that 75 percent of modified homes will re-default

Written on June 19, 2010 – 6:18 am | by Alicia Ross

Most HAMP modifications will end in a re-default or foreclosure

Most Americans have managed to escape foreclosure and lower their monthly payments by modifying their mortgage loans, providing relief to many families. But most homeowners that received a mortgage modification loan are likely to re-default on their payments within a year, according to a recent report.

A recent Fitch Ratings study reveals that between 65 percent and 75 percent of homes modified through the federal Home Affordable Modification Program, but not backed by a federal agency, are likely to default on their mortgage loans within one year, CNN Money reports. Researchers attribute this trend to the heavy debt that most Americans carry in other areas, in addition to their mortgage problems.

“Many of these borrowers still have very heavy levels of other debt,” Fitch managing director Diane Pendley told CNN Money. “Auto loans, credit cards and other expenses. The HAMP modifications reduce housing expenses down to 31 percent of income but do not touch these other obligations.”

Pendley told the money magazine that nearly 64 percent of a HAMP-modified borrower’s income is already spent before they even consider daily expenses, much less financial emergencies. This level of debt and lack of savings almost guarantees that in the event of an emergency, such as a medical bill or car repair, an individual would have little to fall back on financially.

Mortgage Bankers Association chief economist Jay Brinkmann told CNN Money that he finds “nothing at all surprising” by the findings and notes that once a borrower defaults for a second time, lenders are more likely to suggest foreclosure options.

HAMP has been instrumental in helping more than 300,000 Americans achieve permanent modifications. Fannie Mae and Freddie Mac also recently announced that they may offer modifications to eligible homeowners that were ineligible to receive a new loan through HAMP.

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