Moody's says slow start for Obama mod program delays home-price recovery.(Briefing Book)

New York-based Moody's Investors Service's Moody's Weekly Credit Outlook for July 13 carries a story by Celia Chen, senior director with West Chester, Pennsylvania-based Moody's Economy.com, that says the slow start for the Home Affordable Modification Program (HAMP) means home prices will not hit their trough until the middle of 2010. As a result, Moody's has pushed back its projected date for a home-price trough from early 2010 to mid-2010.

The article states, "Our more pessimistic forecast is mainly due to the slow start to the Obama administration's Home Affordable Modification Program." The credit-rating agency has tweaked its forecast further and is calling now for a peak-to-trough price decline of 39 percent, up from the earlier 38 percent.

The article states that Moody's still assumes that HAMP will help limit foreclosures, "but this process will take longer than initially expected. Even after HAMP is running smoothly, rising negative equity and increasing job losses will make it impossible to halt a tidal wave of foreclosures this year, placing downward pressure on house prices."

The slow start for HAMP carries with it much broader economic implications. The article maintains, "The longer it takes to ramp up modifications under HAMP, the worse the downside risks are for housing and for the broader economy."

Chen writes, "While we do not expect HAMP to prevent foreclosures from increasing this year, we do expect it will ultimately help modify some 1.5 million to 2 million loans over the next three years." But the author warns that the slow start to HAMP "threatens this assumption, as the continued descent in house prices will erode home equity and render fewer borrowers eligible for these programs."

In the same issue, an article by De-bash Chatterjee, Moody's vice president and senior credit officer, explains that Moody's currently expects 65 percent to 75 percent and 50 percent to 60 percent of subprime and alternative-A borrowers, respectively, who have not already defaulted to default in the future. The article states, "Although the default and loss assumptions are already quite high, a worsening outlook will lead to further stress."

Separately, in a summary of Moody's rating actions taken in second-quarter 2009, the rating agency said there were 543 downgrades during the second quarter--a 29 percent decrease from the 762 downgrades in the first quarter. Yet, Moody's Analyst Jennifer Tennant said the medium-term trends remain negative, "with 30.9 percent of issuers holding negative outlooks at the end of the second quarter, up from 26.7 percent at the end of the first quarter."

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