HAMP Reaches Benchmark, But COP Questions True Impact

Servicers participating in the federal government's Home Affordable Modification Program (HAMP) started 487,081 trial modifications through September, essentially hitting the goal set earlier by the Treasury Department to have half a million trial modifications in progress by Nov. 1.

Approximately one-quarter of all estimated eligible 60+ day delinquent loans serviced by HAMP servicers have been extended trial plan offers.

But while the Treasury noted that HAMP had achieved the ‘key milestone weeks ahead of schedule,’ the department's watchdog, the Congressional Oversight Panel (COP), issued a report questioning the Obama administration's current approach to preventing foreclosures.

‘We believe we are absolutely moving in the right direction and have reached an important turning point in our modification efforts," said Housing and Urban Development Secretary Shaun Donovan. "But we are nowhere near the finish line yet."

The program's roster expanded to 63 servicers in September, counting U.S. Bank NA and Franklin Credit Management Corp. among the highest-profile new additions. Of the mega-servicers, CitiMortgage saw the biggest jump in terms of trial modifications started as a share of estimated eligible delinquencies. In September's report, the company had 44,750 trial plans, or 23% of its eligible delinquencies, in progress. In October's report, those numbers grew to 68,248 and 33%, respectively. (The company's number of eligible delinquencies grew from 191,128 to 208,472 during the same time frame.)

Bank of America started trial modifications on more loans in September than any other company, with 35,027 (bringing its total to 94,918 trial modifications, or 11% of its eligible 60+ day delinquencies). Wells Fargo started 29,817 trial modifications during the month, and Citi started 23,498 trial modifications. JPMorgan Chase began 10,908 trial modifications in September.

Wells Fargo's numbers do not represent Wachovia's progress with the program. At the end of September, the Wells Fargo subsidiary had 3% of its eligible 60+ day delinquencies set up in trial plans. Mike Heid, co-president of Wells Fargo Home Mortgage, told reporters in October that Wachovia's computer systems had to be "re-code[d]" to address changes in HAMP requirements. The company is wrestling with a large portfolio of option adjustable-rate mortgages (ARMs), many of which do not fit easily into HAMP's eligibility requirements.

Aurora Loan Services also saw a large increase in trial modifications started as a percentage of eligible delinquencies, growing its trial modifications from 16,044 at the end of August to 23,889 at the end of September.

The COP's assessment of foreclosure mitigation efforts, issued a day after the Treasury report, stated that if foreclosure starts reach 10 million to 12 million, as currently projected, HAMP's financial losses will be "massive." The panel had concern over the program's scope, scale and permanence. Estimates from the Treasury that HAMP will prevent as many as 4 million foreclosures gives pause for doubt, because so many option-ARMs will exceed eligibility limits and because HAMP was not designed with unemployment-driven foreclosures in mind.

"It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now," the COP report said.

The COP also found fault with the Treasury's predictions that HAMP, once fully operational, would result in 25,000 to 30,000 modifications per week. If such projections come to fruition, fewer than half of the predicted foreclosures would be avoided, the panel found.

Additionally, the COP questioned the sustainability of HAMP modifications, noting that payments will rise after five years for many borrowers and that HAMP modifications increase borrowers' negative equity, which has been correlated with heightened redefault risk.


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