A government program to save struggling homeowners from foreclosure is producing disappointing results, although doing better than private sector modifications, according to a new report from a federal inspector.
The Home Affordable Modification Program, or HAMP, was designed by the Obama administration to help homeowners hit hard by the mortgage meltdown by lowering their monthly payments. The report from the office of Christy Romero, special inspector general for the Troubled Asset Relief Program, or TARP, found that loans modified early on in the program have disturbingly high redefault rates. Forty-six percent of home loans that were modified with HAMP during the third quarter of 2009 are now defaulting as are 36 percent of those modified in the fourth quarter. Those made during 2010 are doing only little better with a default range of 29 percent to 38 percent.
Currently there are 862,279 homeowners who have received a permanent HAMP mortgage modification, but if borrowers default they are removed from the program. The report found that more than 312,000 participants have flunked out since the beginning of the initiative.
“This is a significant problem,” Romero said as quoted in a Washington Post article. “When homeowners fall out of these modifications, all of a sudden they’re facing huge mortgage payments. If they can’t afford it, they’re going to get foreclosed on.”
The report recommended “that Treasury research and analyze the causes of redefaults, develop an early warning system to try and prevent redefaults, and better help homeowners who have redefaulted.”
As of March 31, HAMP initiatives have cost taxpayers $4.3 billion. Yet the inspector general chided the Treasury for not doing more to help troubled borrowers. The report noted that only 2 percent of TARP funds have been used to modify mortgages, while over 75 percent has been used to bailout financial institutions. Romero’s report said, “Treasury pulled out all the stops for the largest financial institutions, and it must do the same for homeowners.”