Are the Recent HAMP Changes Enough?

Last Friday, the Obama Administration announced improvements to the Making Home Affordable Program, including the Home Affordable Modification Program (HAMP).  Some important changes include enabling more people to qualify by opening its program to rental property owners and homeowners burdened by medical and credit card bills and second mortgages and extending HAMP’s deadline for an additional year through December 31, 2013.

NACA welcomes these changes to HAMP. We hope that by expanding eligibility and extending the deadline will help more homeowners obtain successful loan modifications.  It’s been over three years since the program was launched and only 900,000 homeowners have had their loans permanently modified under the program, which is significantly short of the Administration’s original goal of helping 3 to 4 million homeowners. To date, the Treasury Department has spent only $2.3 billion of the $29 billion set aside for the program.

Since HAMP’s announcement in 2009, NACA and other consumer groups have identified to the U.S. Department of Treasury several ways in which the program could be improved.  One major flaw in the program is the lack of principal reduction by the GSEs – Fannie Mae and Freddie Mac – for underwater borrowers. The Administration’s announcement claims to improve this by providing incentives that would have the GSEs reducing principal on these loans, but it’s hard to reconcile how this will occur when the Federal Housing Finance Agency (FHFA) that oversees the GSEs is still not supporting principal forgiveness. In a letter to Congress, FHFA’s acting director Ed DeMarco remains unconvinced that principal reduction is consistent with the goal of saving taxpayer money stating that principal reduction would cost $100 billion if every single underwater government-backed mortgage were adjusted. Furthermore, the increased incentive payments for principal reduction announced by the Administration do not appear to be focused on servicers, but instead will go to investors, who in our experience have been consistently more open to principal write-downs.

The GSEs lack of principal reduction is not the only significant problem with HAMP. The fact is that the program is still voluntary for servicers.  Even with improving incentives for loan modifications the issue of compliance remains.  NACA attorneys continue to report problems of mortgage servicers noncompliance either through losing borrower’s documents, delaying loan modifications to rack up fees or proceeding with foreclosures while borrowers are also seeking modifications.  Until Treasury is serious about making the servicers comply with HAMP guidelines this type of malfeasance will persist and HAMP will never be as successful as it could be.