Oversight Panel Questions 'Permanence' of HAMP
The Congressional Oversight Panel (COP), which reviews and reports on actions taken by the US Treasury Department, expressed concern about the limitations in both scope and scale of the Making Home Affordable (MHA) program and questioned the Treasury’s approach to permanently modifying mortgages. MHA’s centerpiece, Home Affordable Modification Program (HAMP), allocates capped incentives to servicers for the modification of distressed loans. The Treasury currently estimates it will spend $42.5bn of the $50bn in funding from the Troubled Asset Relief Program (TARP) for HAMP, an amount that will support nearly 2.6m modifications, according to the COP’s October report. But the COP warned that if foreclosures continued trending toward 10m to 12m, as it currently estimates, the losses will be “massive,” and that HAMP increasingly appears to target a housing crisis as it existed six months ago, instead of the one raging now. “Treasury hopes to prevent as many as 3 to 4 million of these foreclosures through HAMP, but there is reason to doubt whether the program will be able to achieve this goal,” according to the report. When fully operational, servicers participating in HAMP should be modifying 25,000 to 30,000 loans per week. But even reaching its goal may not be large enough to slow the foreclosure crisis, according to the COP. “Treasury’s own projections would mean that, in the best case, fewer than half of the predicted foreclosures would be avoided,” according to the report. As of Oct. 1, servicers reached the 500,000-modification milestone that was originally set for Nov. 1, according to an announcement from the Treasury and the US Department of Housing and Urban Development (HUD). “The COP report correctly recognizes that the Home Affordable Modification program is achieving its intended goal of providing struggling borrowers with more affordable modified monthly payments – giving families an average of $500 a month that they can keep or devote to other important things,” according to a statement from the Treasury. Even though HAMP is still in its early stages, only a small portion of trial modifications that began three or more months ago reached permanence, according the COP report, and many homeowners will see their payments rise after five years. “While reaching half a million trial modifications nearly a month ahead of schedule is an important milestone, we recognize that the next challenge is converting borrowers from trial to permanent modifications. We are intently on [sic] working with servicers to ensure that eligible borrowers receive permanent modifications,” according to a statement from the Treasury. Of the 75.6m owner-occupied residences in the US, 68% of them, or 51.6m carry a mortgage. Since 2007, 5.4m of these homes slipped into foreclosure, and without a significant recovery in the economy, 3.5m more could foreclose by the end of 2010, according to the COP report. “The result for many homeowners could be that foreclosure is delayed, not avoided,” according to the COP. Write to Jon Prior.