HAMP Still Not Performing as Projected

Reports out of the Congressional Oversight Panel have indicated that the HAMP (Home Affordable Modification Program) project has not lived up to expectations. The program, which began in March of 2009, when the Obama Administration published the Making Home Affordable (MHA) Program, gave mortgage services the tools necessary to begin defaulted loan modifications in the hopes that borrowers will still be able to maintain their homes without the threat of bank foreclosure hanging over their heads.

The HAMP report has shown that nowhere near as many home owners as projected received, or will receive, help through the program. HAMP was formulated as a direct result of the Bush administration’s TARP (the Troubled Asset Relief Program) that was in enacted in 2008. TARP was put into action because of the problematic circumstances that US financial systems were facing. The objective was to bail out large companies, which were approaching or were in bankruptcy, in hopes that the economy would stabilize. Once it was finally realized that the economy was failing because of banks’ giving unsecured loans, HAMP was enacted to try and further shore up the windfall of the burst of the housing bubble.

HAMP’s aspirations were high. It was initially designed to help 3 to 4 million mortgage borrowers, who were facing foreclosure, to keep their homes. The report by the Oversight Panel estimates that only between 700,000 and 800,000 mortgagees will be helped through this program. Unfortunately, this is not even a drop in the bucket of the expected 8 to 13 million homes scheduled for foreclosure by 2012.

The Panel did give some facts, not just projections or predictions. They have found that only 519,648 permanent modifications were made by the end of October. Some outside analysts and some applicants of the program are of the belief that the process is too difficult to qualify for and time consuming in that the process might not help borrowers quickly enough to avoid foreclosure. Of those that were helped, a staggering 11% re-defaulted, becoming more than 2 months behind on the modified payments.

Under the HAMP project, eligible borrowers can have monthly mortgage payments lowered by up to 31%, in accordance with their pre-tax income. The amount the mortgage payment is lowered, though, is thoroughly dependent on the profitability of continuing the mortgage. Ted Kaufman, chairman of the Oversight Panel, contends that the program has turned out to be “a lot smaller” and therefore has less impact than was originally predicted.

The report indicated that there are several reasons for HAMP’s shortfall. First and foremost, servicers, who are hired by the banks to manage mortgage loans, delayed or prevented modifications because they would receive extra profits through ongoing fees imposed during foreclosures. Another unexpected hurdle came when it was found that many borrowers had second mortgages that had to be on board with the potential deals as well. The fact that many of these homes were actually worth less than what borrowers owed did not help the program because second mortgage lenders refused to sign off on the modifications unless they were paid something.