Scotsman Guide - May 2011 Residential Edition

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BY IVANNA C. SUKKAR, EDITOR

Is the Home Affordable Modification Program nearing a premature end?

These past couple of years, re- fis were big business for many mortgage brokers. With interest rates at record lows late last year and many adjustable-rate-mortgage borrowers facing loan resets, people were scrambling to lower their monthly mortgage payments.

But what about those millions of homeowners who can’t refinance because of tighter under writing standards or, in many cases, because they owed more on their mortgage than what their home was worth? according to financial-information provider CoreLogic, more than one-quarter of U.S. homeowners with a mortgage were under water or almost underwater at the end of 2010.

Instead of just sending these borrowers on their way with a “Good luck — sorry I can’t help you” if they don’t qualify for a refinance, mortgage originators can point them to programs and information that may be able to help, such as the federal Making Home affordable programs for loan modifications and foreclosure avoidance.

although these programs — most notably, the modification program — have been under major scrutiny lately, it helps to look at usage data and to compare them to other modification programs out there.

the advent of Affordable

In February 2009, the federal government launched the Making Home affordable program, which was part of the Emergency Economic Stabilization act of 2008. The program introduced the following subprograms intended to help homeowners facing negative equity: the Home affordable Refinance Program (H.a.R.P.) and the Home affordable Modification Program (HaMP).

also part of the program is assistance for homeowners with second liens, as well as the Home affordable Foreclosure avoidance (HaFa) program to help streamline the short-sale and deed-in-lieu-of-foreclosure processes by offering incentives to lenders and servicers, as well as homeowners.

By now, you likely know the details
of these programs — and maybe you’ve
helped clients get H.a.R.P. loans or
helped finance a HaFa short sale. If not,
you can find detailed information about
them at makinghomeaffordable.gov.

Has it helped?

Realty Trac data show that about 7 million homeowners have lost their homes to foreclosure since the housing crisis began. HaMP critics point out that the program hasn’t benefited the number of homeowners it intended to. It was originally estimated that the program would reach 3 million to 4 million households.

according to the program’s servicer-performance report, through this past February, more than 1.5 million homeowners have started trial modifications since the program’s inception. Of those, the report says, more than 630,000 permanent modifications were started.

Do those lower-than-expected numbers constitute failure? Consider this before you make up your mind: according to a fourth-quarter 2010 report on the program from the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), 13 percent of loans modified through HaMP in the first half of 2010 were 60 days delinquent after six months, compared to 24 percent of loans in alternative modification programs. after nine months, the redefault rate was 17 percent for HaMP modifications, compared to 32 percent for bank-offered programs.

Further, this past fourth quarter, HaMP modifications reduced homeowners’ monthly payments by $587 on average — or 35. 9 percent of the premodification payments, the OCC and OTS report says. The average reduction for other programs was $351, or 22 percent, according to the report.

On the flip side, going back to the lower numbers of distressed homeowners benefiting from HaMP than expected, many borrowers who start trial

Past BackSpace Articles

“The fight against mortgage fraud begins with you” (January 2011) “catching up with reverse mortgages — before the boom” (February 2011) “mErS is on the hot seat. what does it mean for you, brokers?” (March 2011) “are you prepared for the fed’s loan-originator compensation changes?” (april 2011)

view these articles at sctsm.in/BackSpace.

PerMAnent HAMP MoDiFiCAtionS (CUMULAtive)

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

Dec '09

Feb ' 10 Apr ' 10 Jun ' 10 Aug ' 10 Oct ' 10 Dec ' 10 Feb ' 11

triAL MoDiFiCAtionS (CUMULAtive)

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

Dec '09

Feb ' 10 Apr ' 10 Jun ' 10 Aug ' 10 Oct ' 10 Dec ' 10 Feb ' 11

Source: U. S. Department of the Treasury modifications are denied permanent loan modifications for reasons that vary from missing or incomplete documentation to outdated documentation to, in some cases, overpaying during their trial periods, according to a March New York Times report.

What’s next?

HaMP and other Making Home affordable programs are scheduled to go through the end of 2012. This past March 28, however, the House of Representatives voted to terminate HaMP early. Reports indicate the bill likely won’t pass in the Senate, and if it did, White House officials have indicated President Barack Obama would veto it if it came across his desk.

also, this past april, the U.S.

Department of the Treasury announced it would start “grading” servicers on their HaMP performance. The department will start releasing quarterly compliance reports, including a scorecard for the 10 largest HaMP servicers that measures how they evaluate homeowners for modifications in addition to their staff resources and internal processes.

RealtyTrac estimates 3 million foreclosures will take place this year. Call me an optimist, but it seems to me that having a program that has helped homeowners comprising 21 percent of that figure since its inception modify their loans permanently is a lot better than not having such a program at all. •