The Home Affordable Modification Program has succeeded in limiting the supply of distressed properties to hit the market and, as a result, has helped stabilize prices. That success may be short-lived.
Laurie Goodman, a senior managing director at Amherst Holdings LLC's Amherst Securities Group LP, warned in a research note this week that the massive shadow inventory of homes waiting to go into foreclosure will inevitably lead to a double dip in home prices.
Three recent enhancements to the modification program — the Federal Housing Administration's short refinancing option, a principal-reduction alternative and second-lien modifications — will not result in significant numbers of homeowners getting permanent modifications, Goodman predicted.
"If the modification programs do not succeed, the huge amount of shadow inventory will produce an inevitable double dip in home prices," she wrote. "Our concern is that the programs announced so far will be less successful than hoped and home prices will begin to fall."
At some point, Goodman said, the Obama administration will be forced to make principal reductions "more mandatory."
She estimated that fewer than 35% of defaulted borrowers who apply under HAMP will get permanent loan mods that do not redefault. Worse, Goodman said, HAMP will be less successful "than old-style modifications with a similar payment reduction."
