Mortgage servicer uptake of the expanded Home Affordable Modification Program announced earlier this year is mixed, according to the Government Accountability Office.
The Treasury Department relaxed debt-to-income requirements and said it would triple payments to investors who allow principal reduction under the program. Not all servicers were able to install the changes by the June 1 deadline, according to the GAO report, and the results so far varied.
The GAO asked five different servicers how the changes would affect their modification count under HAMP but did not name the companies. One expected a 15% to an 18% increase in workouts because of the expanded DTI range.
Modification trials and permanent conversions have been on the decline since 2010 as the pool of eligible borrowers shrank from an estimated 1.4 million in December 2010 to less than 900,000 at the end of last year (click the chart below to expand).
Another servicer said half of its borrowers were not eligible for the program before the expansion. The Treasury required second liens and other obligations to be factored into the DTI ratio calculation. Previously, if a borrower’s first-lien mortgage monthly payment was below 31% of the income, the borrower was deemed ineligible.
One servicer told the GAO about 15% of its investors in mortgages it services opted out of the principal reduction program when it was first launched in 2010, but the larger incentives enticed them to reconsider.
The Federal Housing Finance Agency continues to examine the possibility for letting the country’s largest mortgage investors Fannie Mae and Freddie Mac to participate.
The Treasury expects to spend roughly $9 billion of the anticipated $29.9 billion allocated for HAMP on principal reduction payments through 2017, according to the GAO.
Roughly 6% of all HAMP permanent modifications include principal reduction as of April, up from 1% in May 2011, the GAO said.
The GAO claimed the Treasury did not fully assess the risk of expanding HAMP, which the administration disputed in a letter to the agency.
Timothy Massad, assistant secretary for financial stability at Treasury said in a letter to the GAO that although not every servicer met the deadline, all but one of the 18 largest servicers did manage to implement at least some aspects of the expanded program.
“Given the currently low participation rates and the reasons for them, as well as the mixed expectations of the servicers we interviewed, it is not yet possible to determine whether the changes will significantly increase the number of troubled borrowers assisted under MHA,” the GAO said in its report. “Nevertheless, Treasury’s steps may further support the still-fragile housing market and help reduce the number of potential foreclosures.”
