Senate Studies Foreclosure Prevention Efforts

The Senate Banking Committee on Thursday heard from regulators and industry players on the progress of foreclosure prevention efforts including the Making Home Affordable Program, which has been criticized for what seems to be a slow start.

The US Treasury Department’s assistant secretary for financial stability Herbert Allison told the committee that 27 servicers signed up to participate in the Treasury’s Home Affordable Modification Program (HAMP).

Their participation, along with that of the government-sponsored entities, effectively covers more than 85% of all US mortgages, he said. So far servicers have offered 325,000 trial modifications, with “tens of thousands” of trials already underway, Allison said, although the program is not without its challenges.

He said the Treasury is calling for servicers to expand their capacity for the HAMP by adding staff, enhancing online offerings and sending additional mailings to borrowers that qualify. Last week, the Treasury sent a letter to servicers, asking for expedited implementation of HAMP and the appointment of a liaison  to work with Treasury on the program’s progress.

But the program is not a cure-all, Allison said, as the Treasury expects “millions of foreclosures,” even if the HAMP is a total success.

“Some of these foreclosures will result from borrowers who, as investors, do not qualify for the program,” he said, according to prepared remarks. “Others will result because borrowers do not respond to our outreach. Still others will be the product of borrowers who bought homes well beyond what they could afford and so would be unable to make the monthly payment even on a modified loan.”

Testimony from another featured witness at the committee hearing indicates borrower circumstances are not the only thing slowing down foreclosure prevention efforts. The US Department of Housing and Urban Development’s senior advisor for mortgage finance, William Apgar, said some borrowers actively seeking aid are running into difficulties on the end of the servicers.

“Many consumers have had trouble reaching their servicers and receiving a timely response from servicers after they have submitted applications for modification,” he said. “Other consumers have complained of receiving inaccurate or misleading information from servicers.”

Apgar noted the presence of second liens poses another challenge to some borrowers attempting to refinance. There are, however, substantial logistical complications in communication between first and second lien holders in coordinating modification of both liens, he said. And even should the modification commence, Apgar noted, the issue of incentive payments under the MHA Program only further complicate the issue.

He urged improvement to the FHA refinance program, HOPE for Homeowners (H4H) which he said could be integrated into the MHA Program to mitigate some of the confusion. Borrowers seeking assistance from servicers would be offered an H4H refinancing in tandem with an MHA trial modification option.

Even outside of the MHA Program’s modification and refinance reaches into the single-family mortgage market, Apgar noted the risks that multifamily and rental property foreclosures pose for renting households.

“[R]ecognizing that there is an impending crisis in the multifamily mortgage sector which could have devastating effects for tenants,” Apgar said, “HUD Secretary Donovan has led the Administration’s review of potential means to expand access to bond financing to assist State and Local Housing Finance Agencies in continuing to pursue their important financing role to increase both affordable homeownership and rental housing opportunities.”

Write to Diana Golobay.