April was a sad month for troubled homeowners looking for relief with permanent mortgage modifications. More than 122,000 borrowers participating in trial modifications through the Obama administration’s Home Affordable Mortgage Program were rejected for permanent mortgage changes. To date, about 277,640 borrowers have had their mortgage modifications canceled in the past year.
There were roughly 68,000 homeowners who did receive permanent status, but there are currently about 637,350 borrowers now enrolled in the trial program, and many of those will likely not get permanent changes either.
A big part of the problem is that borrowers have been allowed by many banks to join the program with no more than a stated income. Borrowers can be denied permanent status if income cannot be verified. They can also be kicked out if they are late on their trial payments, or don’t meet other program requirements.
“As those decisions get made, it’s certainly expected that there would be some that fall out of HAMP,” said Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office as quoted on CNNMoney. com.
New rules from the government say that borrowers must now provide all required income and loan documentation before being accepted into the program. It’s not surprising that those companies that were already practicing that rule have been most successful at converting trial loans to permanent modifications. On average, the six that required paperwork up front have been able to transfer more than half of their trials to long-term status, with two lenders, HomEq Servicing and Ocwen Financial Corp. reaching a conversion rate of 83 percent.
The hope is that once all servicers start following the new rules many more trials will turn into permanent adjustments. Even if that happens, the question will still be whether this program is truly helping the country prevent a greater foreclosure crisis.