GAO Report Observes HAMP Inconsistencies

ama administration's federal loan modification program has been plagued by inconsistent servicer behavior and unclear guidance from the U.S. Treasury Department, a new report suggests. In its [link=]June review[/link] of the Home Affordable Modification Program (HAMP), the Government Accountability Office (GAO) observes that participating servicers notify borrowers about the program anywhere from one to two months after the first missed payment. The GAO additionally notes that servicers' criteria for ‘imminent default’ vary. The office's inquiry to 10 servicers about their definitions of imminent default yielded seven different sets of criteria, the GAO says, adding that the Treasury failed to provide specific guidance on the matter. Moreover, the GAO faulted the program for inconsistencies related to servicers' internal reviews of HAMP denials and the Treasury's monitoring of consumer complaints. The report comes days after the administration released its May HAMP report, which showed that approximately 340,000 modifications – or about 31% of trial-period plans – have been converted into permanent status. The administration on Monday also debuted a new monthly report – its [link=]housing ‘scorecard'[/link] – which framed HAMP as one piece of its overall response to the foreclosure crisis. In unveiling the scorecard, officials from the Treasury and the U.S. Department of Housing and Urban Development (HUD) emphasized that close to half of the borrowers who fall out of HAMP end up in servicers' proprietary loan modification programs. A HOPE NOW report issued Thursday reveals that servicers' own modifications outstripped HAMP modifications 112,000 to 47,000 last month. ‘The facts are [that] the large majority of those who enter trial modifications are still today successfully able to stay in their homes through the range of alternatives available to them,’ HUD Secretary Shaun Donovan told reporters Monday. Donovan and other administration officials additionally stated that HAMP, which was originally projected to help between 3 million and 4 million borrowers avoid foreclosure, has provided a framework for the servicing industry's broader modification initiatives. Prior to the program's launch in spring 2009, servicers' modifications often increased borrowers' monthly payments, while the HAMP model focuses on affordability and targeting a 31% debt-to-income ratio(DTI). Servicing representatives testifying before the [link=]House Committee on Oversight and Government Reform[/link] Thursday largely echoed those sentiments. Barbara Desoer, the executive in charge of Bank of America's mortgage unit, called HAMP's establishment of the 31% DTI standard a ‘significant advantage’ of the program. Wells Fargo Home Mortgage Co-President Mike Heid said HAMP ‘served as a catalyst to get other programs going’ and ‘pushed other investors toward programmatic loan modifications.’ ‘I believe HAMP worked – and worked in scale – when it needed to,’ CitiMortgage CEO Sanjiv Das added, saying that the program's focus must now shift to containing redefault rates and gracefully transitioning ineligible borrowers out of their properties. Debate this week intensified over the ultimate impact of the government's involvement in foreclosure prevention. Critics of HAMP say the program has given borrowers false hope and put many in a weaker financial position, delaying a national housing recovery in the process. HAMP ‘derailed burgeoning efforts of the private sector to modify loans,’ testified Ed Pinto, a financial services consultant and former chief credit officer with Fannie Mae. Pinto expects a redefault rate of around 40% for HAMP modifications, and he urged committee members to push the Treasury to produce more transparent reporting regarding recidivism rates. [link=]Fitch Ratings[/link] last week projected that between 55% and 75% of modified loans will default again, while Barclays Capital said in its weekly review of securitized products that redefault rates on newer modification cohorts are improving every quarter. The latest [link=]Mortgage Metrics Report[/link] from federal banking regulators similarly reported improvements in later-vintage modifications. Three months after modification, 7.7% of loans that go through HAMP are delinquent by 60 days or more, compared to 11.3% for overall modifications, the Office of the Comptroller of the Currency and the Office of Thrift Supervision reported Wednesday. When questioned about redefault rates on the call with reporters Monday, the Treasury's chief homeownership preservation officer, Phyllis Caldwell, said it would be premature to speculate about HAMP's performance. Based on redefault rates seen to date, HAMP modifications are going bad at a ‘significantly lower’ rate than the industry average, she said. She also noted that the administration will continue to carefully monitor borrowers' post-modification, back-end DTI, which the Treasury's HAMP report pegged at almost 64%. Pressing servicers further on whether HAMP has complemented or detracted from servicers' own modification efforts, Rep. Jim Jordan, R-Ohio, pointedly asked bank representatives Thursday if borrowers who go through HAMP would qualify for their internal modification programs. David Friedman, president and CEO of American Home Mortgage Servicing Inc. (AHMSI) – a nonbank servicer of nonprime loans – cited securitization constraints in stating that two-thirds of AHMSI's HAMP borrowers would qualify under the company's proprietary programs. Heid said the majority of Wells Fargo customers who receive HAMP modifications would otherwise receive non-HAMP mods, adding that between 70% and 80% of the bank's HAMP fallout qualify for some other foreclosure avoidance pr


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