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HAMP eligible borrowers drops below 1 million

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The amount of remaining borrowers eligible for the Home Affordable Modification Program dropped below 1 million with just more than one year left, according to Treasury Department estimates. HAMP data released Wednesday showed participating mortgage servicers started roughly 816,000 modifications since the program launched in March 2009. The August total reached 25,400 completed, three-month trials and new permanent workouts, down from more than 28,000 the previous month. Roughly 4.6 million borrowers in the U.S. are currently at least 60-days delinquent on their mortgage, according to the Treasury. A House subcommittee will hold a hearing Thursday on the Obama administration's response to the foreclosure crisis. According to an analysis of the prepared testimony obtained by HousingWire, much of the discussion will revolve around HAMP. It appears the program would surpass the 700,000 to 800,000 permanent modifications that would avoid default, as estimated by the Congressional Oversight Panel last year. But it will fall far short of the 3 million to 4 million originally projected. Neil Barofsky, the former special inspector general of the Troubled Asset Relief Program, said in his testimony foreclosure filings totaled 1.2 million properties in the first half of 2011 and, while it's down from 1.6 million in the first half of last year, "the improvement is illusory." "In contrast, the number of permanent mortgage modifications under HAMP remains feeble," Barofsky said. He said the Treasury rushed the program and implemented several changes since it opened, pushing smaller subservicers out of participating because of increased compliance costs. Barofsky said the incentive payments meant to offset expenses work only in theory and the "program lacks any meaningful sanctions at all." The Treasury recently withheld payments from Wells Fargo (WFC), Bank of America (BAC) and JPMorgan Chase (JPM) because of their poor performance in the program, but the money was given back to Wells when it showed improvement. BofA and Chase could still receive the funds if they do the same. Laurie Goodman, a senior analyst at Amherst Securities Group, said the Treasury has actually done a good job reaching out to borrowers, but design flaws constricted assistance. Servicers are being asked to perform underwriting activity, usually meant for originators, and they proved to be ill-equipped to adapt. Borrower debt burdens were ignored as well, Goodman said. Payments under HAMP are based on the front-end monthly debt-to-income ratio, which includes mortgage payments, taxes, and insurance. Under program guidelines, this ratio must be moved down from an average of 45% to 31% of income. But Goodman said the back-end DTI, which includes second mortgages, credit cards and auto loans, fell only from an average 78.4% to "a still unsustainable" 61.6% of the borrower's monthly income after a HAMP workout. "Bottom line," Goodman repeated as she has in previous testimony, "principal reductions are the most effective type of modifications, and the HAMP program should make it mandatory." In a statement released Wednesday with the data, the Treasury reiterated that HAMP set the first standard for modifications and has been helpful to those who made it through. Redefaults in the program are also nearly half of private modifications. "Every month, tens of thousands of additional homeowners benefit directly from the administration's programs to help prevent avoidable foreclosures," said Treasury Assistant Secretary for Financial Stability Tim Massad. "These programs have now set standards for the industry that have led to millions more homeowners receiving assistance at no expense to taxpayers. We recognize that there are homeowners who are still struggling but eligible for assistance and remain committed to reaching those homeowners," Massad said. Write to Jon Prior. Follow him on Twitter @JonAPrior.

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