Executives and analysts testified before the House Committee on Financial Services Tuesday outlining the struggles servicers are having converting trial modifications into permanent status under the Home Affordable Modification Program (HAMP). Through HAMP, the US Treasury Department provides allocated capped incentives to servicers for the modification of loans on the verge of foreclosure. For every 100 HAMP trial plans initiated by Chase Home Finance from April to through September, 29 borrowers did not make the required payments and failed to reach a permanent status, according to testimony from Molly Sheehan, senior vice president at Chase Home Finance. Chase has offered more than 560,000 modifications under HAMP, its own program and programs made available by the government-sponsored enterprises (GSEs), the Federal Housing Administration (FHA) and VA programs. Of these, a little more than 83,000 modifications have become permanent. Under HAMP alone, Chase has converted 4,302 of the 199,033 HAMP trials offered into permanent modifications. Jack Schakett, credit loss mitigation strategies executive at Bank of America(BAC) testified that BofA has roughly 65,000 customers who have made more than three trial modification payments on time. Unfortunately, 50,000 of them, or 76%, have either not submitted all required documents or the ones they have submitted reveal discrepancies that require additional response. Schakett said BofA has initated 160,000 trial modifications under HAMP. BofA has a potential cap incentive of $967m, according to the latest Troubled Asset Relief Program (TARP) transaction report. Last week, the Treasury held a meeting with mortgage servicers, applying more pressure on them to convert more HAMP trials into permanency. That same week, the Treasury announced it expects 375,000 permanent modifications by the end of the year. Each panelist cited missing documentation as the primary reason for the low conversion rate into permanency. “Frequently, it may be documents they do not have easy access to, for example, supporting death certificate or divorce decree. This is a true origination process. This is really, truly underwriting a new loan, and we are looking at all of the different financial aspects of their situation. So, it is a challenge for borrowers and we’re trying to help them overcome that challenge,” Sheehan said. Shakett of BofA added: “When they were first setting up HAMP, there was a lot of discussion around whether or not we should require full documentation, partial documentation or no documentation to start the trial modification period.” Shakett said that there was a consensus to allow for easy access into the program with no documentation requirements and use the trial modification period to gather the documentation. He said that Bank of America now requires at least two documents to enter the program: the hardship affidavit, which is fundamental to the program, and a form which lets them know that they will be pulling a tax return at some point in the future. Anthony Sanders, a professor of real estate finance at George Mason University cited three reasons for the slow permanent conversion rate. According to a Deutsche Bank research report, he said, 25m homes will be in negative equity, making modifications “extremely difficult.” Also, the unemployment rate, while reported at 10% is closer to 17.5% when wage and salary curtailment is included. The third reason, he said was documentation. “Borrowers may claim that the servicers are making it difficult to obtain documentation, when, in fact, they may just simply be hoping that the permanent modification will be approved without full documentation,” Sanders said. The Treasury will release its first report on the permanent conversion rate of HAMP trials this week. Write to Jon Prior.
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