Adding to the confusion about the success of the Home Affordable Modification Program (HAMP), the Treasury Department has had to release a correction to last month's performance numbers because other analysts pointed out substantial errors.

In its original report last month, Treasury touted the success of the program in helping distressed homeowners get sustainable loan modifications. The original report claimed that only 8% of homeowners who received permanent loan modifications in the third quarter of 2009 were delinquent after nine months.

Analysts at Barclays and other market watchers questioned those figures, however and Treasury had to retract them, explaining that Fannie Mae had apparently used flawed methodology.

The corrected report does show that HAMP loan modifications are gaining ground in preventing re-defaults.

Just under 10 percent of homeowners who received permanent loan modifications through HAMP in the fourth quarter of 2009 were delinquent after six months, compared to an average of 15% of those receiving them in the third quarter. Overall, 20% of all homeowners with HAMP loan modifications are delinquent by 60 or more days -- 15% delinquent by 90 days or more.

HAMP Numbers Trending Better, Ultimate Success Still in Question

As reported earlier in this blog, analysts at Fitch Ratings Ltd. have estimated that 65-75% of those whose mortgages were packaged into private-label mortgage-backed securities and who later received loan modifications through HAMP will ultimately default.

Even if that is true, however, some industry leaders remain hopeful that HAMP will have an overall positive effect. First, it may have given the housing market "breathing room" by slowing down the pace of foreclosures. Spreading the trouble out over time could make it easier to deal with, although it will likely keep real estate prices down for a longer period.

Although HAMP has been able to secure permanent loan modifications for a disappointingly small number of borrowers, many in the banking industry admit that it has helped create a standard process for loan modifications. That standardization could make it the process of obtaining a loan modification more predictable and help make the modifications themselves more sustainable.

Only 39,000 borrowers received permanent HAMP loan modifications in June. In the same month, more than 90,000 dropped out of HAMP before obtaining a permanent modification.

Related Resource:

"Treasury Correction: Modified Mortgages Perform Less Favorably" (Developments blog, Wall Street Journal, August 10, 2010)