Mortgage Modification Program at 50 Percent Drop Out Rate – Does That Equal Failure?

The latest figures from the Treasury Department are reporting that almost half of all participating homeowners dropped out of the government’s Home Affordable Modification Program (HAMP) through July. The program, begun in April 2009 to stem the tide of nationwide foreclosures, cut 48.1 percent, or 100,114 of it 1.3 million homeowners last month because they failed to meet income documentation requirements.

In June, the failed number was also large, but not quite as dramatic – 41.2 percent of participants disqualified in that month. And the numbers are not expected to dwindle anytime soon.

“The number of new cancellations is expected to exceed the number of permanent modifications for the next few months as servicers clear their backlog of aged trials,” the Treasury said in a statement.

HAMP works like this: struggling homeowners apply for help, after providing proper documentation of their situation, they are allowed enrollment in the trial modification program. During this time, their mortgage payments are reduced to 31 percent of their income, with their lenders receiving government-funded (read: taxpayer-funded) incentives to agree to this arrangement. If they make all their payments on time for the next several months, their trial mod can be converted to a permanent payment reduction.

The problem right now is that up until June 1 homeowner were not required to provide proper documentation upfront, and now many of those who were initially accepted are being weeded out because of ineligible income and other factors. So the percent of permanent conversion could increase dramatically by the end of the year, although the number of people actually helped by the program will probably drop off significantly.

So is this program a failure? Not according to Treasury officials.

“This program has actually been transforming the mortgage-servicing industry to handle the very large need in the country” for foreclosure relief, said Herbert Allison, assistant Treasury secretary as quoted in the Wall Street Journal.

“What we see now is that the [private-sector] modifications are modeled on the HAMP modifications,” he added. “They’re providing affordability modifications for the very first time.”

Yet based on sheer numbers, HAMP has certainly fallen short of saving the millions of homeowners it originally promised to help. The Treasury now says it aims to help about 4 million people by the end of 2010. So, we’ll see if HAMP can deliver some more upbeat conversion numbers in the next  two-and-a-half years.

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on August 20th 2010 in Mortgage News




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