Higher rates loom for some modified mortgages


Homeowners who got government loan modifications during the financial crisis will begin to see monthly payments rise this year, government report says.

Almost 800,000 homeowners will see mortgage payments rise about $200 a month in the next few years as the benefits of their government loan modifications ease, a new government report says.

The first higher payments will hit more than 30,000 homeowners this year. They received the initial mortgage modifications in 2009 under the government’s Home Affordable Modification Program (HAMP), says the report from the office of the Special Inspector General of the Troubled Asset Relief Program (SIGTARP).

The modifications were intended to help homeowners avoid foreclosure as housing prices sank and unemployment soared. About 95% of HAMP modifications included cuts to interest rates, some to as low as 2%, SIGTARP says.

But the “permanent” modifications only last five years, after which interest rates can reset no more than 1 percentage point per year until they get back to the prevailing rate for a 30-year fixed rate loan at the time of the modification.

Between now and 2021, 782,748 HAMP homeowners will get increases, SIGTARP says, including almost 300,000 next year.

The increased costs “could be a problem for some people,” says Keith Gumbinger, mortgage expert with HSH.com.

For loans that received HAMP modifications in 2009, SIGTARP expects median increases as a result of the higher interest rates of $242, pushing monthly payments to $1,026.

Banks and mortgage servicers modified loans outside the HAMP program. From the end of 2009, more than 3 million non-HAMP modifications were done, says Hope Now, an alliance of housing counselors, mortgage companies and others.

Many of those modifications also provided for interest rate cuts and resets after five years.

SIGTARP, which looked at only the HAMP program, says some of the HAMP homeowners could eventually see their mortgage interest rates increase to as much as 5.4%. The average for a 30-year loan last week was 4.39%, Freddie Mac says.

The higher costs are “a real issue that people aren’t talking about,” says Special Inspector General Christy Romero.

She notes that many homeowners who got HAMP modifications have either already defaulted again or “continue to struggle.”

HAMP permanent mortgage modifications lowered homeowners’ monthly mortgage payments to 31% of their gross monthly income through a series of steps, including interest rate cuts.

But more than 4 of 10 homeowners who got permanent HAMP modifications in 2009 defaulted again, SIGTARP says.

Since HAMP’s 2009 inception, about 28% of loans that received permanent modifications went into default again, the report says.

Four states account for half of homeowners with active HAMP permanent modifications that are scheduled for interest rate and payment increases, SIGTARP says. Those states are California, Florida, New York and Illinois.



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