Most borrowers who receive lower mortgage payments under a federal government program will default within 12 months, according to Fitch Ratings Ltd. 

The redefault rate among those with loans that are not backed by a federal agency within a year is estimated at 65% to 75% under the Home Affordable Modification Program, or HAMP, according to a report released yesterday by Fitch, a New York-based credit-rating firm. Almost all of those who got loan modifications already have defaulted once.

Diane Pendley, a managing director at Fitch, said the failure rate is probably high because most of these borrowers had high levels of credit card debt, car loans and other obligations. The Treasury Department has said that among people given loan modifications under HAMP, the median ratio of total debt payments to pretax income is at 64%. That can mean little money left for food, clothing or emergency expenses such as medical care and car repairs.

Fitch based the redefault forecast on the performance of loans modified in the first quarter of 2009. Those modifications were done outside of HAMP, which took effect later in the year.

At the end of April, about 295,000 households were benefiting from long-term modifications under HAMP, which typically involves cutting the interest rate as low as 2%, according to the Treasury. Another 637,000 households were in trial modifications, under which they need to show they can make their new, lower payments consistently and provide documents proving they are eligible. Under the $50 billion HAMP program, the federal government provides financial incentives to borrowers, loan servicers and mortgage investors for modifying loans.

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