More than a third of the 1.24 million trial loan modifications made through May under the Home Affordable Modification program (HAMP) have been canceled, although most borrowers exiting the program end up in other loan modifications or become current on their loans, the Obama administration reported Monday.

Cancellations of temporary loan modifications are on the rise as servicers comply with guidance from the Treasury Department to make decisions on "aged" trials. More than 70 percent of the trial modifications canceled in April were at least six months old, the report said.

Borrowers in temporary loan modifications can qualify for permanent modifications after making their trial payments for three months. But some may lose their trial loan modifications because their mortgage payments are already less than the 31 percent of income stipulated by the program, or because they missed payments or had documentation that could not be verified.

About half of borrowers who have had their trial loan modifications canceled end up in an alternative modification program, the report said, and nearly 10 percent left the program because they became current on their loans. Another 26 percent remained in limbo, with lenders yet to take further action, while 7 percent were foreclosed on.

Of the 346,816 borrowers who have successfully transitioned to permanent loan mods since last fall, less than 2 percent have dropped out of the HAMP program so far.

All of those borrowers who have been granted permanent loan modifications received interest-rate reductions; 54 percent have also had their loan terms extended; and 29 percent have been granted principal forbearance. 

Borrowers receiving permanent modifications saw their monthly payment drop from a median of $1,425 to $836, with front-end debt-to-income ratios falling from 44.8 percent before modification to 31 percent.


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