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House Committee Investigates HAMP 'Effectiveness'

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Edolphus Towns (D-NY), chairman of the House Committee on Oversight and Government Reform, this month began an investigation of the Home Affordable Modification Program (HAMP) on concerns of the “effectiveness and efficiency” of the program. The US Treasury Department launched HAMP in March 2009 to allocate capped incentives to borrowers for the modification of loans on the verge of foreclosure. After eight months in the program, the Treasury reported 66,465 permanent loan modifications in December, up from 31,382 permanent modifications in November. Towns sent a letter to Treasury secretary Timothy Geithner, asking for specific data during the investigation. In the letter, Towns asked for clarity on how the Treasury defined a borrower’s net present value (NPV), why reasons for denial are not revealed and a recommendation for an appeals process. Towns based the investigation after the committee received complaints that loan servicers were too slow, inconsistent and not communicating with eligible borrowers. It's not the first time HAMP has come under criticism. Dean Baker, the co-director of the Center of Economic and Policy Research told HousingWire that HAMP does more harm than good. “I am not a big fan of HAMP. It clearly is not going to benefit the vast majority of people facing foreclosure, many of whom are too deeply underwater to have a realistic hope of keeping their home,” Baker, told HousingWire. “As it is, I think that the main impact of the HAMP program has been to string people along so that they continue to make payments on an underwater mortgage.” Baker supports a program similar to the Retaining Occupancy on Foreclosure (ROOF) program initiated in Detroit, where borrowers make a monthly payment to stay in the home after a foreclosure. "I would much rather see the government adopt a realistic policy that recognizes that most underwater homeowners will lose their home and tries to ameliorate the pain," Baker said. "My preferred option is right to rent legislation, which would temporarily change the rules on foreclosure to give people facing the loss of their home the right to stay there for a substantial period of time (e.g. 5-10 years) paying the market rent." In December, Laurie Goodman, senior managing director at Amherst Securities, pointed toward the key role negative equity plays in predicting default behavior. HAMP is “destined to fail,” as it does not address negative equity, Goodman said in opening remarks to the House Financial Services Committee. She added that federal mortgage programs must include principal reduction and must address the loss allocation among first lien investors and second lien investors to have lasting effect. Scott Norman, vice-president of the Texas Mortgage Bankers Association (TMBA), also said HAMP does not tackle the main problem borrowers are facing. “We certainly support the program, but there are some details that still need to be worked out. For those borrowers who can no longer afford their house payments, I'm concerned they may not see any significant relief unless we see something that reduces their principal balance. But we don't know what that's going to cost," Norman told HousingWire. But even the Treasury admits that HAMP is not for everyone. Seth Wheeler, senior adviser to the Treasury when speaking at the American Securitization Forum (ASF) in Washington, DC, said the Treasury is shifting its focus away from modifications as HAMP is not always the best solution. “Short sales, deeds in lieu are other ways to prevent foreclosures to help achieve [housing] stability,” he said. “Modifications are only for a certain subset of distressed homeowners.” The Treasury will launch the Home Affordable Foreclosure Alternative (HAFA) program in March, to provide incentives for short sales and deeds-in-lieu of foreclosure to borrowers deemed ineligible for HAMP. Write to Jon Prior.

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