Saying goodbye to HAMP isn’t the end for struggling homeowners

This is what the change means to Fitch Ratings

Dec. 31, 2016 marks the end of a seven-year government program designed to save struggling homeowners who are behind on their mortgage, or in danger of imminent default due to financial hardship.

The government's Home Affordable Modification Program also came with incentives for servicers and investor, which worked to help unify the industry after the financial crisis.

HAMP’s sibling, the Home Affordable Refinance Program, which was created at the same time, was extended in August until Sept. 30, 2017 in order to create a smoother transition period for a new refinance product. HAMP, on the other hand, is still slated to end at the end of this year.

Borrowers aren’t out of luck though. A new report from Fitch Ratings explains that 2017 brings the start of a new system that can still be beneficial for all parties involved. There are just a few wrinkles that the system would need to be ironed out.

Up until this point, Fitch stated that HAMP loan modifications have accounted for approximately 50% of all loan modifications completed this year, and this number is dropping. HAMP monthly applications are now approximately 70% below the monthly average at the start of the program.

The main benefit Fitch outlines is that modification decision timelines will shorten.

“Currently servicers first perform full reviews of applications for acceptability to HAMP guidelines; ineligible candidates are usually subsequently screened for acceptability under proprietary modification programs,” the report stated.   

With HAMP ending, this initial step is removed and servicers will likely be able to make faster modification decisions.

This is likely to then translate into shorter liquidation timelines for the portion of loans that do not qualify for proprietary modifications.

The main industry fear is that there will no longer be any consistency in the industry anymore since HAMP unified everyone.

Back in July, the Department of the TreasuryDepartment of Housing and Urban Development, and the Federal Housing Finance Agency, the three main governmental agencies that were involved in this program, took a look back the programs’ history and provided a look at what’s next.

The government wants to make sure that the mortgage industry will take steps to ensure that loss mitigation is still a priority over foreclosure.

To avoid another massive wave of foreclosures, the agencies stated that the mortgage industry can take several steps, including the adoption of five “guiding principles” that the agencies believe should be the foundation for future loss mitigation programs: accessibility, affordability, sustainability, transparency, and accountability.

The Consumer Financial Protection Bureau later reaffirmed these principles in its own words, adding that these principles are not binding legal requirements and instead are intended to complement ongoing discussions on the development of loss-mitigation programs.

The Fitch report touched on these likely differences now that non-HAMP ‘proprietary’ modifications will be used more frequently.

“Borrowers applying for modifications in 2017 may find greater ease in the documentation gathering process and faster approval/decline decisions,” the report stated. “However, features of proprietary modifications differ across servicers and this can be further impacted by approaches taken by the investors in the loans.”

Fitch stated that the HAMP program provided for the unification of loss mitigation policies across the broad mortgage servicing industry but as proprietary modifications increase to replace HAMP, the overall variability in modifications is expected to increase.

“To be clear, the end of HAMP does not mean the end of available help to borrowers still struggling with their mortgage payments as other existing programs remain available,” the report stated.

In fact, it added concluded that many servicers have found success through the use of their own proprietary loan modification programs. 

Another positive Fitch noted is that with a further HAMP extension unlikely, the GSE’s are expected to focused on other borrower relief programs. 

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