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TARP Special Inspector General Calls HAMP Disappointing
More than a year after the creation of the Home Affordable
Modification Program (HAMP) "disappointing results have raised questions about
program effectiveness" according to a new report by the Special Inspector
General for the Troubled Asset Relief Program (SIGTARP.) The report was sent to Treasury Secretary
Timothy Geithner last week over the signature of SIGTARP Neil M. Barofsky.
The report, which is the first of several which will be
issued, addresses HAMP's status and whether the program has met participation
goals thus far and what conditions the Treasury Department has faced and will
face in the future in implementing the program.
In conducting the audit, SIGTARP reviewed HAMP program policies,
procedures, and marketing materials from Treasury and other government agencies
involved in the program as well as materials from a sample of five participating
servicers. Officials from that servicer
sample were also interviewed. The focus
of the audit, however, was the Treasury Department and not the operations of
the servicers, 110 of which had signed on to participate in the program by the
end of January.
The SIGTARP report outlines several broad reasons for HAMP's
disappointing results to date. First,
program rules had not been fully developed before the program started and
Treasury has had to revise those guidelines repeatedly, causing confusion and
delay. The Department's decision to
allow servicers to start modifications before receiving supporting
documentation created a large backlog of trial modifications and many of those
will never become permanent. Third,
Treasury has not adequately promoted the program. SIGTARP called the absence of televised public
service announcements "inexplicable."
The HAMP program was designed to assist borrowers who are delinquent
in mortgage payments to obtain modifications to those loans which would place
the maximum payment amount at 31 percent of monthly income, hopefully
permitting borrowers to return to performing status. The main vehicle for these modifications has
been a reduction in interest rate although a few borrowers have also had the term
of their loan extended and an even smaller number have seen reductions in the
principal balance.
The SIGTARP report said that, while Treasury had a "laudable
aspiration" that the program would actually help 3 to 4 million homeowners
avoid foreclosure it also has stated that the goal is not tied to how many
homeowners actually obtain relief and avoid foreclosure but rather on how many
will receive offers for a trial modification.
"Measuring trial modification offers, or even actual trial
modifications for that matter," the report says, "is simply not particularly
meaningful." Instead, it recommends
that a new goal be developed and tracked; how many people are helped to avoid
foreclosure and stay in their homes through permanent modifications. "Transparency and accountability demand
that Treasury establish goals that are meaningful, and that it report its
progress in meeting such meaningful goals on a monthly basis. Continuing to frame HAMPs success around the
number of 'offers' extended is simply not sufficient."
Treasury itself refers to the 168,708 permanent modifications
achieved as "disappointing" and one official's estimate of a total of
1.5 to 2 million such modifications over the four years the program is designed
to run, may be only a small fraction of the total number of foreclosures that
will actually occur during that period.
It is that estimate, the report says, and not the still often quoted 3-to-4-million
figure that "should inform the debate on whether HAMP is worth the
resources being expended or whether the program needs to be revamped to
actually help more borrowers."
A second stated goal, to involve servicers representing
coverage of 90 percent of all privately owned mortgages was very nearly reached
by the time HAMP issued its first public status report in July, 2009. At that point, 38 servicers had signed on to
the program, a number which covered 85 percent of the target market. By the end of January the 110 participating
servicers represent 89 percent coverage.
Borrower participation, however, has been another
matter. The first trial modifications
were started in April, 2009 and through July 2009, 235,247 borrowers had
entered the program. Treasury, unhappy
with the numbers, issued a series of changes to accelerate the pace of
enrollment including announcement of individual servicer performance, the
development of program metrics and a review by Freddie Mac of a sample of modifications. A goal of one-half million trial
modifications by November 1 was also set.
That goal was in fact, exceeded but, when the first public disclosure of
permanent modifications was announced it was only 31,000. Treasury has since announced further efforts
to increase these conversions both through increased pressure on and monitoring
of servicers, engagement with local groups to increase outreach, and
streamlining of the documentation process.
However, a big problem still appears to be failure to provide
documentation on the part of borrowers and lack of communication between
borrower and servicer.
Since October, conversions to permanent status have
increased monthly, going from 3,000 to 52,000.
The report, however, quotes a Treasury official as saying even the
current "modest pace" of conversions is not sustainable and the
number of trial cancellations will likely increase.
SIGTARP identified two significant hurdles in converting the
substantial backlog of trial modifications into permanent status. Originally servicers were permitted to start
a borrower into a trial program with only a stated income or verbal financial
information. In December, HAMP reported
that 18 servicers including four out of the five largest were using stated
income, scheduling documentation for collection during the trial period. This has caused significant time and effort
on the part of servicers both in collecting data and in identifying and
removing ineligible borrowers from trials after they submitted inaccurate
information. "Although use of
verbal financial information certainly helped Treasury meet its interim target
of achieving 500,000 trial modifications by November 2009; because of this
diversion of resources, allowing verbal modifications was arguably
counterproductive to attaining permanent modifications" This policy was
ended effective April 1, 2010.
A second problem was caused by a trial period payment policy
that will also end in April. Under the
original rules, after the borrower made the first payment on his modified
mortgage he then had the full length of the trial period to make further
required payments. Thus the remaining
two payments (or three payments in the case of non-defaulted borrowers with a
four month trail) could be made on the last day of the trial. This effectively hid borrowers who were
unable or unwilling to keep up new payments and it has been found that about 25
percent of homeowners in trial have not kept payments current. Many homeowners may have used this policy to
deliberately game the system and live rent free during the trial. As of April 15, borrowers must make their
trial period payments every month to be considered current.
Recent data indicates HAMP might confront additional
difficulties in bringing new borrowers into the trial program. Since October, new trials have only averaged
about 96,000 per month and January and February had significantly lower rates
than November and December. It is also
clear that a significant number of borrowers will fall out of the trial without
completing it. The report quotes one
Treasury official as estimating that only 50 to 66 percent of trial
modifications will become permanent and another as saying that a 75 percent
conversion rate would make it "quite a successful program."
The remainder of SIGTARP's findings and recommendations in
its first report will be covered in a second article on Monday.
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TARP Special Inspector General Calls HAMP Disappointing
More than a year after the creation of the Home Affordable
Modification Program (HAMP) "disappointing results have raised questions about
program effectiveness" according to a new report by the Special Inspector
General for the Troubled Asset Relief Program (SIGTARP.) The report was sent to Treasury Secretary
Timothy Geithner last week over the signature of SIGTARP Neil M. Barofsky.
The report, which is the first of several which will be
issued, addresses HAMP's status and whether the program has met participation
goals thus far and what conditions the Treasury Department has faced and will
face in the future in implementing the program.
In conducting the audit, SIGTARP reviewed HAMP program policies,
procedures, and marketing materials from Treasury and other government agencies
involved in the program as well as materials from a sample of five participating
servicers. Officials from that servicer
sample were also interviewed. The focus
of the audit, however, was the Treasury Department and not the operations of
the servicers, 110 of which had signed on to participate in the program by the
end of January.
The SIGTARP report outlines several broad reasons for HAMP's
disappointing results to date. First,
program rules had not been fully developed before the program started and
Treasury has had to revise those guidelines repeatedly, causing confusion and
delay. The Department's decision to
allow servicers to start modifications before receiving supporting
documentation created a large backlog of trial modifications and many of those
will never become permanent. Third,
Treasury has not adequately promoted the program. SIGTARP called the absence of televised public
service announcements "inexplicable."
The HAMP program was designed to assist borrowers who are delinquent
in mortgage payments to obtain modifications to those loans which would place
the maximum payment amount at 31 percent of monthly income, hopefully
permitting borrowers to return to performing status. The main vehicle for these modifications has
been a reduction in interest rate although a few borrowers have also had the term
of their loan extended and an even smaller number have seen reductions in the
principal balance.
The SIGTARP report said that, while Treasury had a "laudable
aspiration" that the program would actually help 3 to 4 million homeowners
avoid foreclosure it also has stated that the goal is not tied to how many
homeowners actually obtain relief and avoid foreclosure but rather on how many
will receive offers for a trial modification.
"Measuring trial modification offers, or even actual trial
modifications for that matter," the report says, "is simply not particularly
meaningful." Instead, it recommends
that a new goal be developed and tracked; how many people are helped to avoid
foreclosure and stay in their homes through permanent modifications. "Transparency and accountability demand
that Treasury establish goals that are meaningful, and that it report its
progress in meeting such meaningful goals on a monthly basis. Continuing to frame HAMPs success around the
number of 'offers' extended is simply not sufficient."
Treasury itself refers to the 168,708 permanent modifications
achieved as "disappointing" and one official's estimate of a total of
1.5 to 2 million such modifications over the four years the program is designed
to run, may be only a small fraction of the total number of foreclosures that
will actually occur during that period.
It is that estimate, the report says, and not the still often quoted 3-to-4-million
figure that "should inform the debate on whether HAMP is worth the
resources being expended or whether the program needs to be revamped to
actually help more borrowers."
A second stated goal, to involve servicers representing
coverage of 90 percent of all privately owned mortgages was very nearly reached
by the time HAMP issued its first public status report in July, 2009. At that point, 38 servicers had signed on to
the program, a number which covered 85 percent of the target market. By the end of January the 110 participating
servicers represent 89 percent coverage.
Borrower participation, however, has been another
matter. The first trial modifications
were started in April, 2009 and through July 2009, 235,247 borrowers had
entered the program. Treasury, unhappy
with the numbers, issued a series of changes to accelerate the pace of
enrollment including announcement of individual servicer performance, the
development of program metrics and a review by Freddie Mac of a sample of modifications. A goal of one-half million trial
modifications by November 1 was also set.
That goal was in fact, exceeded but, when the first public disclosure of
permanent modifications was announced it was only 31,000. Treasury has since announced further efforts
to increase these conversions both through increased pressure on and monitoring
of servicers, engagement with local groups to increase outreach, and
streamlining of the documentation process.
However, a big problem still appears to be failure to provide
documentation on the part of borrowers and lack of communication between
borrower and servicer.
Since October, conversions to permanent status have
increased monthly, going from 3,000 to 52,000.
The report, however, quotes a Treasury official as saying even the
current "modest pace" of conversions is not sustainable and the
number of trial cancellations will likely increase.
SIGTARP identified two significant hurdles in converting the
substantial backlog of trial modifications into permanent status. Originally servicers were permitted to start
a borrower into a trial program with only a stated income or verbal financial
information. In December, HAMP reported
that 18 servicers including four out of the five largest were using stated
income, scheduling documentation for collection during the trial period. This has caused significant time and effort
on the part of servicers both in collecting data and in identifying and
removing ineligible borrowers from trials after they submitted inaccurate
information. "Although use of
verbal financial information certainly helped Treasury meet its interim target
of achieving 500,000 trial modifications by November 2009; because of this
diversion of resources, allowing verbal modifications was arguably
counterproductive to attaining permanent modifications" This policy was
ended effective April 1, 2010.
A second problem was caused by a trial period payment policy
that will also end in April. Under the
original rules, after the borrower made the first payment on his modified
mortgage he then had the full length of the trial period to make further
required payments. Thus the remaining
two payments (or three payments in the case of non-defaulted borrowers with a
four month trail) could be made on the last day of the trial. This effectively hid borrowers who were
unable or unwilling to keep up new payments and it has been found that about 25
percent of homeowners in trial have not kept payments current. Many homeowners may have used this policy to
deliberately game the system and live rent free during the trial. As of April 15, borrowers must make their
trial period payments every month to be considered current.
Recent data indicates HAMP might confront additional
difficulties in bringing new borrowers into the trial program. Since October, new trials have only averaged
about 96,000 per month and January and February had significantly lower rates
than November and December. It is also
clear that a significant number of borrowers will fall out of the trial without
completing it. The report quotes one
Treasury official as estimating that only 50 to 66 percent of trial
modifications will become permanent and another as saying that a 75 percent
conversion rate would make it "quite a successful program."
The remainder of SIGTARP's findings and recommendations in
its first report will be covered in a second article on Monday.
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