Dropout Rate Hits 51% in Obama’s Mortgage Modification Program
More than half – 682,659 homeowners –of the more than 1.3 million borrowers in the Obama Administration’s mortgage modification effort have dropped out of the program as the foreclosure crisis shows few signs of abating.
The Home Affordable Modification Program (HAMP) update for August, released today, shows that 51 percent of the 1,334,117 borrowers who started trial periods of reduced monthly payments have cancelled out of the 16-month-old program.
In July, the dropout rate stood at 48 percent.
The number of borrowers in permanent modifications is 448,937. Those homeowners realize a median monthly payment reduction of 36 percent, or more than $500 per month.
But the cancellation rate has been gnawing at HAMP’s attempt to make a big dent in the foreclosure crisis. The most common causes of cancellations include: insufficient documentation, missed trial payments, or primary housing expense that is already less than 31 percent of household income, according to the August HAMP report.
The August report also says that servicers are placing more than half of homeowners from canceled trials in “alternative modifications.” Fewer than 15 percent of homeowners in canceled trials are moving toward foreclosure, the report said.
In their monthly “housing scorecard,” U.S. Treasury officials highlighted the positives of the program and stressed that more assistance is on the way, particularly $4 billion to the hardest hit U.S. regions to expand modifications or alternative programs.
“We’ve been steadily enhancing our programs to help struggling homeowners avoid foreclosure,” said Treasury Assistant Secretary for Financial Stability Herb Allison. “We understand that the foreclosure crisis can be highly localized and some regions have seen severe home price declines and faced severe unemployment.”
But critics of the program, including borrower advocates, point to the lack of substantial mortgage principal reductions.
The watchdog that oversees the effectiveness of the government’s bailout programs – which funds HAMP – has urged the U.S. Treasury to make either discretionary or mandatory a program to rescue borrowers from foreclosure through mortgage principal reductions. Currently, the alternative program is voluntary, leaving the decision up to the mortgage servicer.