Panel: HAMP Tripped Up by Servicers
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- Kara Johnson | December 14, 2010
The government’s Home Affordable Modification Program (HAMP) will likely help only 700,000-800,000 homeowners avoid foreclosure, about one-fifth of its original goals, a congressional review has determined.
Furthermore, the program will likely end up spending only about $4 billion on foreclosure prevention, out of $30 billion in Troubled Asset Relief Program (TARP) funding the Treasury Department says it has allocated to the program, according to today’s report from the Congressional Oversight Panel (COP).
The COP report concludes that, if current trends continue, HAMP will fall far short of its original goal of helping 3-4 million homeowners avoid foreclosure and will make only a small dent in the 8-13 million foreclosures expected to occur by the end of 2012. It blames the shortcoming in part on the complexity of contemporary mortgage lending relationships, but also on the Treasury Department’s failure to fully keep tabs on and make improvements to the program.
Servicers had incentives to foreclose
The report concludes that one of the major reasons the program fell short of its goals is that it did not require mortgage servicers to participate. It found that while lenders and investors can often trim their losses by modifying troubled mortgages, mortgage services can earn more in fees by quickly moving such loans to foreclosure, and so had little incentive to modify loans.
Although lenders and investors are the ones who own the mortgage itself, servicers are the ones who manage the loan, collect the payments and act as the point of contact for borrowers. As such, they are typically the ones who handle loan modification requests.
Another major obstacle for HAMP, the report found, was that many borrowers had second liens with lenders who refused to agree to a loan modification without compensation.
The report also criticized the Treasury Department for failing to take mortgage servicers to task for losing borrower’s paperwork or refusing to conduct loan modifications. It also criticized Treasury for turning over much of the program to Fannie Mae and Freddie Mac, whose business relationships with mortgage servicers raised questions about their willingness to conduct stringent oversight. Freddie Mac in particular was singled out for failing to enforce contractual rights that may have damaged its relationship with mortgage servicers who were among its biggest loan providers.
Easier application process urged
Although it is too late to make major changes to the program that will enable it to reach its original goals, the COP says there are some problems that can still be addressed. In particular, it says that Treasury should make it easier for borrowers to apply for loan modifications, perhaps online, and should take steps to identify loan delinquencies early on so steps can be taken to bring the borrowers current before they fall too far behind on their loan.
The report concludes that much of the $30 billion in TARP funding allocated to foreclosure prevention will go unused, even though the Treasury Department still says it intends to use the full amount. The COP concluded that only $12 billion will be used by all Treasury foreclosure prevention programs, with $4 billion going to HAMP.
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