Delays Hurting Effectiveness Of The Home Affordable Modification Program

Despite implementing more than 405,000 trials through November 30, 2009, analysts remain critical of the effectiveness of the US Home Affordable Modification Program (HAMP). Many loans in the …

Despite implementing more than 405,000 trials through November 30, 2009, analysts remain critical of the effectiveness of the US Home Affordable Modification Program (HAMP). Many loans in the government sponsored enterprises (GSEs) portfolios are enrolled in HAMP, or other foreclosure prevention relief programs, but continue to remain in delinquent status for many months. See the following article from HousingWire for more on this.

The mortgage giants Fannie Mae (FNM: 1.15 -2.54%) and Freddie Mac (FRE: 1.45 -3.33%) implemented 405,700 active Home Affordable Modification Program (HAMP) trials and permanent loan modifications as of Nov. 30, 2009, according to a report from the Federal Housing Finance Agency (FHFA).

Under HAMP, the US Treasury Department provides capped incentives to servicers for the modification of loans on the verge of foreclosure. According to the latest reports from the Treasury, there are 103 servicers participating in the program, totaling more than 30,000 permanent modifications.

The FHFA’s report details the actions taken by the government-sponsored enterprises (GSEs) to prevent foreclosures. According to the report, foreclosure starts for the GSEs declined in Q309 by 15% to 254,200 from the previous quarter, but completed foreclosure and third-party sales increased by 23% to almost 71,000. The amount of loan modifications done outside of HAMP increased 14% to 36,700 in Q309.

The FHFA also reported that on nearly half of these loans modified outside of HAMP in Q309, borrowers’ payments dropped by more than 20%.

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But HAMP continues to struggle in the eyes of analysts like Laurie Goodman at Amherst who testified before Congress that the program was “destined to fail,” and a movement of borrowers who continue to report delays and a lack of communication between them and the servicer. This sort of distance continues to affect the public’s opinion of the program, despite what the banks say and the Treasury reports (See HousingWire’s Person of the Year issue).

Bank of America (BAC: 16.78 -0.89%), which registered only 98 permanent HAMP modifications through November, cited a lack of documentation as the key to the low conversion rate for trial mods. BofA since released a flurry of letters requesting documents and provides a clarification of the modification terms to its borrowers.

On the outset HAMP, the Treasury pressed servicers to sign up as many borrowers into a trial modification as possible, and they did so without gathering all the necessary documentation, in the hopes of collecting it along the three-month trial pathway. This early tactic lead to delays and low conversion rates. Borrowers have reported waiting as much as seven months for a permanent modification after completing the trial.

The FHFA report also showed delinquencies in the GSE portfolios. Loans behind by only one month increased by 52,000 loans or almost 8% in Q309 to 734,000. Loans behind by 60 days or more increased by almost 20% in Q309 to 1.6m.

“A number of these loans are in some form of foreclosure prevention relief, such as an active HAMP trial modification, but remain in a delinquent status until the execution of a HAMP permanent modification or successful completion of an active repayment or forbearance plan,” according to the report.

On top of modification, short sales and refinancing picked up in the GSEs. Fannie and Freddie refinanced almost 4 million loans from November 2008 to November 2009 and more than 155,700 loans through the Home Affordable Refinance Program (HARP). Short-sales and deeds-in-lieu of foreclosure increased by 39% during Q309 to 17,400.

Interest in short sales and deeds-in-lieu of foreclosure will be going up as 2010 gains steam, with the implementation of the Home Affordable Foreclosure Alternatives (HAFA) program launching in March.

This article has been republished from HousingWire. You can also view this article at
HousingWire, a mortgage and real estate news site.


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