Ocwen Financial Corp. President Ronald M. Faris, testifying before Congress, recommended enhancements that Ocwen believes would make the government's Home Affordable Modification Program (HAMP) more effective.
‘Almost a year into HAMP, too many homeowners facing foreclosure are having difficulty getting their loans modified. In our view, this is due mainly to a lack of sufficient capacity and expertise in the industry to handle the volume,’ Faris told the Domestic Policy Subcommittee of the House Oversight and Government Reform Committee on Feb. 25.
Faris offered tweaks to HAMP's structure, suggesting the program's debt-to-income ratio (DTI) be lowered below 31%.
‘One out of every four HAMP applicants is rejected for failing to meet this standard. Usually, these are families struggling with higher household expenses for food, clothing and education," he said, adding that HAMP should employ either a "residual income approach," an across-the-board DTI of 28% or a sliding-scale DTI that varies based on the number of dependants in a household.
Principal reductions are needed to overcome the negative-equity problem, Faris said, calling borrowers' underwater nature the primary driver of defaults and redefaults.
"In Ocwen's experience, negative equity increases the chance of a redefault by 1.5 to two times," he told the panel. "Approximately 15% of all of our loan modifications have involved some element of principal reduction."
Faris additionally suggested that more funding be made available for housing counselors and that underperforming HAMP servicers be required to outsource their loss mitigation work to better-performing HAMP participants.
Ocwen's three-month redefault rate on HAMP modifications is under 5%, compared to an industry average of between 18.7% and 33.7%, he told the committee.