Let's Do The Default Again: The HAMP Horror Picture Show
Addison WigginBio
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm.
The executive producer of the acclaimed documentary film I.O.U.S.A. and
3 time New York Times best-selling authort, Addison is also the editorial director of Agora Financial’s daily 5 Min. Forecast and The Daily Reckoning.
The latest numbers are in from HAMP, the Home Affordable Modification Program. After digging into the Treasury’s report, let’s sum up the relevant numbers, highest to lowest:
Number of homeowners in default or foreclosure:
7 million
Number of homeowners the White House hopes to help with HAMP:
4 million
Number of homeowners who’ve gotten trial modifications under HAMP:
1.4 million
Number of homeowners who’ve gotten permanent modifications:
230,801
So that’s 3.3% of homeowners in trouble that HAMP is actually helping
Oh, but wait.
Once a homeowner is approved for permanent modification, what kind of debt load is he or she left with? You know, that might lend a clue to whether the borrower can keep up the new lower payments.
Traditional lending standards--those in place before the mortgage market took leave of its senses--dictated that a mortgage payment should be no more than
28%
of the borrower's gross income, and the overall debt load (once you include credit cards, car payments and other debt servicing obligations) should be no more than
36%.
The typical homeowner who got a permanent modification now has a mortgage payment equal to
31%
of gross income.
Not too out of line with reason, but once you throw in all the other debt, the “back-end ratio,” as they say, what do we have?
Drum roll, please: 61.3%.
So that’s three dollars out of every five--before taxes!--servicing debt.
Doesn’t leave a whole lot for groceries, gas or anything else.
Before they were approved for their permanent modification, these borrowers' total debt load amounted to
75.7%.
That’s 1.2 million people who are now emerging from purgatory and headed to Hades.
Sooner or later, anyway.
They have yet to receive their final notices.
We may “hope the housing market recovery remains on course.”
But as our mothers told us, we “hope for the best,” but prepare for reality.
We may be comfortably in the minority, but we believe housing and commercial real estate are about to get another shellacking and have arrayed our investment recommendations accordingly
Addison Wiggin
for The Daily Reckoning
Hamp Horror Show originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets.
blogs.forbes.com
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