Scary Thought of the Day

The U.S. Treasury released new data on the health of the government's Home Affordable Modification Program (HAMP). The HAMP program seeks to provide homeowners who are delinquent on their mortgages a chance to modify the terms of their loans in an effort to stave off foreclosure. (Full disclosure: I help run the numbers to determine the cost of the HAMP program to the government.)

The data look really bad. Here's how Calculated Risk sums it up:

If we look at the HAMP program stats (see page 5), the median front end DTI [debt to income ratio, which includes just mortgage debt] before modification was 44.9% - up slightly from 44.8% last month. And the back end DTI [debt to income ratio that includes both mortgage and all other additional debt, like car loans, credit card debt, taxes, etc.,] was an astounding 80.2% .

Think about that for a second: over 80% of the borrower's income went to servicing debt. And it is over 64% after the modification. Do they have a life?

Just imagine the characteristics of the borrowers who can't be converted.

The data say that the median homeowner applying to the HAMP program has 80 cents of every dollar she makes going toward paying debt.

How is that possible?