After Fannie Error, Treasury Issues Correction on Mod Program Default Numbers

The government’s latest, promising numbers on its mortgage modification program turn out to be wrong. But the new data remains encouraging.

by Paul Kiel
ProPublica, Aug. 10, 2010, 2:17 p.m.

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Last month, the Treasury Department released its latest numbers on the current status of homeowners who'd managed to receive a permanent modification through the government's foreclosure prevention program. The results suggested homeowners were doing miraculously well. But it turns out, the numbers were too good to be true.

On Friday, the Treasury released revised numbers that still show a relatively low level of default, but one significantly higher than the earlier estimate. For instance, Treasury had estimated that less than 3 percent of homeowners who began a permanent modification last summer had fallen more than three payments behind. That number turned out to be about 15 percent.

So how did the government get such an important metric for the program so wrong? All that's clear is that Fannie Mae, which works under a $113 million contract to administer the program for the Treasury Department, made mistakes when crunching the numbers. In a statement, Treasury spokesman Mark Paustenbach said the mistakes had been fixed, and both Fannie and Treasury had hired outside consultants to verify the new results.

The newly published default rate does remain encouraging. Modifications under the program's rules reduce homeowner payments on average far more than modifications offered outside of the program by banks, and as a result, a higher proportion of homeowners are expected to be able to maintain the payments. Early indications support that. For example, a recent regulatory report on mortgages shows that modifications begun in the second quarter of 2009 (all done outside of the government program) had defaulted in about 33 percent of cases after nine months. That's about twice the default rate the government program has shown so far.

Of course, it's worth keeping in mind that relatively few homeowners have actually emerged with permanent modifications through the program. Though about 1.3 million homeowners have begun the three-month trial period, fewer than 400,000 have emerged with permanent modifications. Far more have either been booted from the program or left waiting more than half a year for a final answer.

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8 comments

Erich Riesenberg

Aug. 10, 2010, 2:27 p.m.

A 15 percent re-default rate in less than the first year is a good rate? Wow.

And is there a point to registering, I registered but can not find any way to log in.

synical

Aug. 10, 2010, 2:40 p.m.

sounds like more of the conspriacy by the government to fool the people into thinking all is well. 15% is truely high but with the “trial”, they can eliminate most undesirable applicants before counting them

Iheartgovtspending

Aug. 10, 2010, 3:14 p.m.

“both Fannie and Treasury had hired outside consultants to verify the new results”

We pay them tax dollars to screw it up.
We pay them tax dollars to create a new program to fix the screw up and they screw that up too.
We pay additonal tax dollars so they can hire consultants since their competence can’t be trusted.

All the while politicians buddies are making huge $$ working for, lobbying for and contracting for these effed up entities.

And we want MORE of this?

Debbie

Aug. 11, 2010, 6:54 a.m.

“Far more have either been booted from the program or left waiting more than half a year for a final answer.”

We have been waiting over a year. Then we got the “Congratulations youve qualified” letter only to find out someone put a hold on our modification. But no one at Fannie knows who or why.

Joe

Aug. 11, 2010, 1:23 p.m.

15% isn’t that high compared with the original 3% figure, huh? I wonder how you would report this if BP had said that oil had fouled only 3% of the Gulf Coast beaches and then later restated it to 15%. “Apoplectic” comes to mind.

Jon Laird

Aug. 11, 2010, 5:12 p.m.

iheartgovtspending hit the nail on the head. I’ll repeat a comment on another article:

Econ 101, Rule 1:

The consumer pays for EVERYTHING!

You can insert “taxpayer” if you prefer.

Aug. 12, 2010, 2:06 p.m.

Listen…all working people want is to refinance….with a very low interest rate. Alot of the people losing their homes CAN afford them but not at 11, 18 or 25% interest hikes from their current to the higher due to the “rip off” on the lender part or the “lack of understanding” on the homeowner part. Let the American people who can prove they have been paying their mortgages up to the point of the rate hike and that have jobs and can prove all of this, refinance…it is that simple.

tystick999

Aug. 14, 2010, 7:27 p.m.

Everyone forgets that the BORROWERS signed real estate contracts, but they don’t want to be responsible for their actions. Now they are underwater and want someone to bail them out. I was in the mortgage industry, and CHOSE NOT to buy a home, because I could plainly see how ridiculous it was. Everyone touching a loan file is at fault. They should all have to suffer the consequences.

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This article is part of an ongoing investigation:

Foreclosure Crisis: Banks and Government Fail Homeowners

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

The Story So Far

Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.