The Obama Administration’s much-hyped, four-year-old mortgage modification program, known as HAMP or Making Home Affordable, is failing to keep homeowners from staying in permanently-reduced payment plans, resulting in an “alarming rate” of defaults, according to a government watchdog.
U.S. Treasury and housing officials are responsible for the administration of HAMP (Home Affordable Modification Program), which was launched in early 2009 with the goal of assisting 3 to 4 million homeowners facing possible foreclosure.
But HAMP has come under fire for widespread compliance problems with participating lenders, creating delays and documentation foul-ups for homeowners, lawmakers and consumer advocates have previously found.
Only 862,279 homeowners are in an active permanent HAMP modification, about half of which were funded through TARP, the Troubled Asset Relief Program, the primary bailout vehicle that fed billions into the biggest banks at the height of the financial crisis.
As of March 31, 2013, more than 312,000 homeowners have redefaulted on their HAMP permanent modification, emphasized the government watchdog over the bailout program, the Special Inspector General for TARP, or SIGTARP.
“SIGTARP is concerned that the number of homeowners who have redefaulted on a HAMP permanent mortgage modification is increasing at an alarming rate,” the watchdog’s latest quarterly report found.
As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at a rate of 46.1 percent and 39.1 percent. HAMP permanent modifications from 2010 also had high redefault rates, ranging from 28.9 percent to 37.6 percent.
Treasury’s data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program, SIGTARP said.
“Treasury should work to curb HAMP redefaults to keep homeowners safe from losing their homes,” SIGTARP recommends. “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.”
SIGTARP recommends that Treasury conduct research and analysis to understand better and attack the underlying root causes of homeowner redefaults on HAMP modified mortgages.
SIGTARP’s report is very critical of the Treasury’s oversight of HAMP:
SIGTARP: Exactly why these HAMP permanent modifications failed is not well understood by Treasury. SIGTARP understands from meetings with Treasury officials that Treasury does not require servicers to report on the reasons for redefault. Because redefaults are so harmful to all, Treasury should develop a better understanding of why homeowners redefault, and the characteristics of loans that are more likely to redefault.
Better knowledge of the characteristics of the loan, the homeowners, the servicer, or the modification, more prone to redefault will increase Treasury’s understanding of the underlying problems that cause redefaults and provide Treasury an opportunity to address these issues proactively.