Subprime home loans became a noteworthy ingredient in the recent real estate frenzy. Large pools of them were sold on the secondary mortgage market as RMBS, or residential mortgage-backed securities, to supply additional liquidity for more loans. When the air suddenly escaped from the tremendous housing bubble the first mortgage product to absorb its swift and devastating effects was the subprime kind, leaving scores of investors wondering what had whacked them.
Moody's Investors Service details that subprime RMBS issued from 2005 to 2008 reached a delinquency level of 54.4% in January of 2010, an all-time high. From there on, though, the rate has been steadily falling, settling at 51.5% in April, a moderate improvement. But it had been climbing continuously for years since the real estate market's collapse, so a change downward, even if slow, is desirable news. In short, subprime mortgage borrowers are bringing their loans current at an increasing rate. Everybody likes to see that.
According to Moody's research HAMP, or Home Affordable Modification Program, has been a major contributor to this. HAMP has received sometimes loud criticism for its lack of bite, but Moody's numbers appear to show otherwise. In January 117,302 trial modifications were converted into active permanent ones and then in April the same happened to 299,092 of them. That's real progress.
Re-defaults are still a problem, however. Moody's estimates that 50-70% of permanent mortgage loan modifications will do so, thanks to the underwater, or negative equity, dynamic affecting so many states. Worst-mauled areas like Las Vegas and Phoenix are extremely ripe here. The emphasis now from the government is to get home loan lenders and servicers to lower principal for borrowers, a task that has been tough in the past and probably will stay so.
It seems that HAMP needed quite a bit of time to get in gear and now it's cruising along under full power and is showing some encouraging results.