Job Losses at Heart of Freddie's Prime Delinquencies

Job loss and reductions in income are responsible for 58% of the seriously delinquent prime loans in Freddie Mac's portfolio, according to the government sponsored enterprise. Another 16% of Freddie prime loans are 90-days or more delinquent due to "excessive obligations," which includes mortgage debt as well as credit card, auto loans and other indebtedness. Freddie Mac has a 4% serious delinquency rate. Meanwhile, the Treasury Department has reported that 57% of borrowers qualifying for a permanent HAMP loan modification have lost their job or faced a reduction in hours or wages. Another 11% of borrowers cite excessive financial obligations as the reason they needed a loan modification under the Home Affordable Mortgage Program. In 2009, Freddie assisted 143,000 delinquent borrowers through the HAMP program and nearly 14,000 completed the 3-month payment trials and received a permanent modification. HAMP servicers generally reduce the payments on the first mortgage to 31% of the borrower's income, down from a 45% mortgage debt-to-income ratio, according to Treasury. However, a HAMP applicant generally enters the program with a total (back-end) DTI ratio of 76.4%, which is reduced to 59.8% with the modification. While HAMP will provide "permanent relief for millions of families and reduce the overall number of seriously delinquent loans, not all trials or even permanent modifications will be successful in preventing borrowers from losing their homes," said Freddie chief economist Frank Nothaft.