Fitch: Trial Period Decline in Modifications to End

The pressure from Home Affordable Modification Program requirements that has temporarily quelled modifications is letting up, but the number of trial period modifications that ultimately finalize remains to be seen, according to a Fitch report. The rating agency's current data indicate that the projection Fitch made at the end of 2008, that 65%-75% of defaulted mortgage loans would default again within 12 months, still stands. As the industry awaits the end of the loan modifications' trial period, servicers report that many borrowers are not providing the required documentation, and often do not make the required trial payment, said Fitch managing director Diane Pendley. A closer look of this projection, Fitch said, shows that 11% of all modified loans in residential mortgage-backed securities, including 17% of the loans modified in the third quarter, have failed their first modification and have received a second modification. The ultimate modification performance depends on both homeowners desire to keep the house and their financial ability to do so, Ms. Pendley said. "While the HAMP guidelines ostensibly allow for sufficient cash flow for the new modified housing payment, recent evidence is showing that borrowers may still be unable, if their other debts are excessive, or unwilling to continue making payments on a home where they will see little or no timely possibility for equity return."