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May 16th, 2013

HAMP continues to fail struggling homeowners

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Foreclosure Exit SignThe Home Affordable Modification Program (HAMP) has been a disappointment for many of the homeowners it was supposed to help, judging by the latest quarterly report to Congress issued by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

Launched in early 2009, HAMP was supposed to offer permanent home loan modifications to help as many as 3 to 4 million homeowners avoid foreclosure. But as of March 31, only 862,279 homeowners had active permanent HAMP loan modifications, and that figure was expected to decline since more than 312,000 homeowners had already redefaulted on a HAMP permanent modification.

“For these homeowners, the HAMP permanent mortgage modification they received was not sustainable,” the SIGTARP report stated.

‘Alarming’ rate of redefaults

The report also found that redefaults were “increasing at an alarming rate,” and that the longer a homeowner remained in HAMP, the more likely he or she was to redefault out of the program.

The oldest HAMP permanent modifications, which dated back to the third quarter of 2009, had redefaulted at a rate of 46.1 percent. The second-oldest permanent modifications, which dated back to the fourth quarter of 2009, had redefaulted at a rate of 39.1 percent. Quarterly redefault rates for HAMP permanent modifications from 2010 ranged from 28.9 percent to 37.6 percent.

“Redefaulted HAMP modifications often inflict great harm on already struggling homeowners when any amounts previously modified suddenly come due. When the homeowner cannot pay it, they lose their home to foreclosure, which has a devastating impact on families, neighborhoods and the economy,” the report stated.

HAMP offers loan servicers and lenders incentive payments to encourage them to modify mortgages, so homeowners who are in default or at imminent risk of default will have modified payments that are affordable and sustainable for them. As of February 28, 97 percent OF HAMP loan modifications included a lower interest rate, 62 percent included a longer term, 33 percent included principal forbearance and 13 percent included principal reductions, the report said.

‘Meaningful relief’?

Federal officials seem unwilling to acknowledge these troubling statistics.

In a recent U.S. Department and Housing and Urban Development (HUD) statement, Treasury Assistant Secretary for Financial Stability Tim Massad said that HAMP “continues to offer struggling families meaningful relief to avoid foreclosure.”

HUD noted that as of March 31, more than 1.1 million homeowners had received a permanent modification through HAMP. But the SIGTARP report said that more than 2 million HAMP modifications had been started as of that date and 54 percent had subsequently been cancelled and removed from the program.

That means more homeowners missed out on a HAMP modification than received one.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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