The Home Affordable Modification Program continues to disappoint. As of Dec. 31, 1 in 3 struggling homeowners who received a loan modification through HAMP ultimately re-defaulted on those loans, a new report has found. Meanwhile, the program that was supposed to help some 4 million families avoid foreclosure has helped only a fraction of that amount, according to a report the special inspector general for the Troubled Asset Relief Program, Christy Romero, presented to Congress. Funded through the Troubled Asset Relief Program, HAMP was created in 2009 as a way to help millions of homeowners who had fallen behind on their mortgages stay in their homes.
The high rate of re-defaults raises questions about whether the loan terms borrowers received were sustainable – or even whether they should have received modifications in the first place. Romero has long criticized the Treasury for failing to crack down on mortgage servicers who failed early in the crisis to properly process HAMP modifications. Another problem is that there is no data on whether the best borrowers – with higher credit scores or loan-to-value ratios – were cherry-picked for those programs, leaving the worst borrowers in government modifications, essentially destined to fail.
“The fact that borrowers are re-defaulting at such a high rate shows that many people are still struggling and cannot afford their modified HAMP payment,” Romero said. “Homeowners got help doled out slowly, in a complicated manner and not when they needed it most.”
Romero’s report found that the longer borrowers remain in the HAMP program, the more likely they are to redefault. Of the homeowners that received loan modifications in 2009, 53% had redefaulted by the end of 2014, up from 46% at the end of 2013. Of the nearly 1.4 million loans modified since 2009, 31% have redefaulted, according to Romero’s report.
Though it has been 6 years since the financial crisis, HAMP remains the centerpiece of Treasury’s efforts to aid distressed homeowners. It has largely been considered a failure due, in part, to lofty claims by the Obama Administration that the program would help up to 4 million homeowners avoid foreclosure.
Before the Consumer Financial Protection Bureau adopted new servicing rules in January 2014, borrowers could simply be denied for turning in an incomplete HAMP application. Now all applications are tracked based on whether they are active, incomplete or inactive for a certain period of time, said Mark McArdle, chief of Treasury’s Homeownership Preservation Office.
A big concern going forward is whether current HAMP borrowers can adjust to upcoming rate resets. The majority of HAMP borrowers got their interest rates reduced to below market, often to as low as 2%, to make their monthly payments affordable. But those lower interest rates were only supposed to last for 5 years. After that, the interest rates rise by 1% a year until they are back to the same interest rate the borrower had at the time of the modification.
In December, Treasury made changes to the HAMP program to provide a cushion to help those borrowers facing rate resets stay current. Treasury will provide an additional $5,000 in principal reductions to borrowers that remain current on their HAMP mods after five years.
Treasury also is offering what McArdle called “a second mod,” known as Tier 2, which requires that servicers evaluate distressed borrowers for yet another modification before a foreclosure. Treasury also increased relocation assistance to $10,000, up from $7,000, for distressed borrowers that complete a short sale or deed-in-lieu of foreclosure.
Banks still have a massive backlog of nearly $58 billion in residential loans in the process of foreclosure, according to Federal Deposit Insurance Corp. filings compiled by BankRegData.com. That represents 48% of all nonperforming loans, and many of those are sitting in limbo often with the borrower not paying until the servicer takes action.
