HAMP disappoints most homeowners, housing counselors say
More than three-fourths of housing counselors responding to a survey conducted by the Government Accountability Office said borrowers hold a "negative" or "very negative" experience with the Home Affordable Modification Program. The GAO received 500 responses to its October 2010 survey of roughly 130 housing agencies regarding HAMP. Nearly 400 responded to the question about how the borrowers they worked with felt about the program. Only 9% of the counselors said borrowers had a "positive" experience, according to the GAO report released Thursday. The Treasury Department expressed concern in the GAO report about the lag time between the survey and current HAMP performance, but admitted some of the problems counselors brought to light still linger. Nearly of half of the counselors who wrote to the GAO said they were receiving "inconsistent or confusing information" when dealing with a different representative each time they called. The Treasury established a rule in May requiring servicers to establish a single point of contact for borrowers working through HAMP and proprietary modification programs and foreclosure. But other problems in the program persist. Lengthy timelines Nearly one-third of the counselors complained of the lengthy decisionmaking process. According to HAMP guidelines, mortgage servicers must notify borrowers if they have been approved for a trial modification within 30 days of receiving the complete HAMP application package. More than 86% of the counselors said it usually took four months or longer. Almost half reported timelines longer than seven months. Nearly three-fourths of the counselors said servicers lost documentation. The GAO adds that participating homeowners often report a lack of disclosure by the mortgage servicer on the HAMP process. Miscalculations When the GAO conducted the survey, roughly 974,000 borrowers had been denied a HAMP trial. That number has since risen to 1.3 million as of February. The main reason why borrowers are rejected is because their mortgage payments already are less than 31% of their monthly income. More than half of the counselors said these borrowers were denied these modifications because servicers allegedly miscalculated the borrowers' gross monthly income. Counselors said servicers miscalculated self-employment income, used the income of one or more nonborrowers – not a cosigner – in the calculation, and also included temporary income from unemployment or other benefit programs. More than half of the counselors said servicers even miscalculated the usually straightforward annual incomes. Solutions The Treasury has made some changes since the survey was conducted. Along with the single-point-of-contact rule, officials established a new escalation program in February to give borrowers who were denied a modification a chance to contest the servicer's decision. In May, the Treasury set up an online calculator to provide borrowers and counselors an idea of whether a modification or foreclosure is more valuable to the investor. The Treasury is developing and will release compliance evaluation for the top-10 servicers in the program. But smaller mortgage servicers may need more inspections, too. On Thursday, Litton Loan Servicing, which is owned by Goldman Sachs (GS), came under investigation from the Federal Reserve Bank of New York for allegedly "sweeping" quickly through modification decisions in order to work through the backlog. A Treasury spokesperson said compliance teams already in place will continue to cooperate with bank regulators looking into Troubled Asset Relief Programs such as HAMP. Still, counselors participating in the GAO survey said they wanted more. Roughly 60% said the Treasury should enforce sanctions against servicers who don't perform well under the program. In June 2010, the GAO said the Treasury had not clarified the consequences of noncompliance. "Treasury told us that it had asked mortgage servicers to rectify issues associated with noncompliance and in some cases had withheld financial incentives but had not yet finalized consequences for noncompliance," according to the report released Thursday. Write to Jon Prior. Follow him on Twitter @JonAPrior.