A restructured Hope for Homeowners (H4H) program, streamlined income documentation processes and forthcoming guidance on short-sale incentives are all expected to support the government's efforts to limit foreclosures, Treasury Assistant Secretary Herbert Allison said before the Congressional Oversight Panel (COP) Thursday.
The COP hearing touched on the wide array of programs made possible by the Troubled Asset Relief Program, which was established about one year ago. But foremost among those programs discussed was the Obama administration's Making Home Affordable initiative and its Home Affordable Modification Program (HAMP) subprogram, under which some 500,000 borrowers had entered trial modification periods through September.
Allison's testimony Thursday came two weeks after the COP issued a status report on foreclosure prevention measures taken by the government in the first half of the year. That report, while commending the Treasury and participating servicers for HAMP's rapid growth in recent months, questioned the ultimate effectiveness of the plan.
Specifically, the report wondered, does HAMP adequately address the changing dynamics of the foreclosure crisis (i.e., unemployment-driven foreclosures)? Will HAMP servicers be successful in converting a material percentage of those 500,000 trial mods into permanent ones? And how many borrowers whose loans are permanently modified will redefault?
COP Chair Elizabeth Warren pressed Allison on those last two points, asking Allison repeatedly for Treasury projections for conversion and redefault rates.
Allison danced around the conversion question, only telling Warren the steps the Treasury has taken to improve conversion rates (e.g., extending the trial period for some borrowers and trimming the number of documents that borrowers need to fill out) and saying, "Our biggest concern right now is that as many people as possible are moved into permanent modifications."
As more trial periods close in the coming months – causing loans to become either HAMP rejects or permanent modifications – the Treasury should have a better indication of how servicers are doing in converting modifications. It's simply too soon to tell, Allison suggested.
Allison also initially balked at providing the Treasury's redefault projections, arguing that because HAMP reduces borrowers' monthly payments (unlike most preceding modification programs), there is no comparable program off which to base projections.
After more prodding by Warren, who said she meant to find out whether HAMP truly prevents foreclosures or simply delays them, Allison finally admitted, "We're really not sure’ about redefault rates.
COP member Richard Neiman, New York's superintendent of banks, took over for Warren when it came to questioning Allison about the administration's plans to handle foreclosures caused by unemployment. Allison reminded the panel that borrowers expecting at least nine months of unemployment payments may still qualify for HAMP. The Treasury is "absolutely" looking at other options, too, he said.
COP member Damon Silvers opined that the issue of unemployment was underestimated by HAMP's architects, and Neiman cited Pennsylvania's successful Homeowners' Emergency Mortgage Assistance Program as a possible future model for new programs.
In his prepared testimony, Allison mentioned other Making Home Affordable developments:
- The Treasury worked with the Internal Revenue Service to simplify the process of servicers' obtaining income tax return transcripts directly from the IRS;
- The Treasury is developing and will soon announce the launch of HAMP's foreclosure alternatives subprogram, which provides incentives for short sales and deeds in lieu of foreclosure;
- Servicers will soon be required to use recently developed denial codes, on a uniform basis, in explaining to borrowers why they are denied modifications;
- Beginning in December, the Treasury will publish servicer metrics that will include data on answer times and turnaround times for modification applications;
- The Treasury expects to implement Internet capabilities in the next few weeks that will allow borrowers to download, complete and print standardized documents; and
- A HAMP compliance committee has been formed, and once Freddie Mac delivers the results of its servicer audits to the Treasury, noncompliant servicers may face penalties.
– John Clapp, editor, Servicing Management