A report from economists and York and Kent State Universities found that popular loan modification programs such as the Home Affordable Mortgage Program significantly increase default rates among borrowers who are current in their payments and decrease the cure rate of borrowers who were delinquent before entering a modification program. A major problem, according to the authors, is that the reduced rates offered through programs like HAMP encourage many current borrowers to simply skip payments so that they then will have stressed mortgages that allow them to qualify for lower-interest modification programs.
According to the authors, the implications of modification-induced strategic defaults are different between current and delinquent borrowers. For loans current before a modification, defaults involve borrowers intentionally stopping payments in order to become eligible for mortgage modification. For already delinquent loans, some borrowers continue missing the payments, rather than become current, in order to remain eligible for a program.
Reactions to Friday's release of Black Knight Financial Services' and the Five Star Institute's white paper titled Analysis and Study of CFPB Consumer Complaint Data Related to Mortgage Servicing Activities were positive within the industry. A spokesman from Freddie Mac attributed the lower complaint volume to the "rising diligence and effectiveness of many servicers" while Tim Rood, Chairman of the Collingwood Group, said the report was "insightful and should quiet critics of the industry's customer service."