With the amount of canceled trial modifications in the Home Affordable Modification Program (HAMP) passing permanent conversions, some are anticipating that the Home Affordable Foreclosure Alternatives (HAFA) program will be more effective in keeping homeowners out of foreclosure. T
he Treasury Department launched HAMP in March 2009 to provide incentives to servicers for the modification of loans on the verge of foreclosure. Less than a year later, the Treasury launched HAFA to boost short sales for those who fail a HAMP modification. In order to receive a permanent modification through HAMP, borrowers must make three monthly payments during the trial period. HAFA was designed to give borrowers who failed to make those payments a chance at a short sale or deed-in-lieu of foreclosure.
Through June, servicers participating in HAMP have converted 398,198 three-month trial modifications into permanent workouts on the mortgage. But according to that same report from the Treasury, servicers have canceled 520,814 trial modifications. Of those cancellations, 60% had been in trials for six months or more, and servicers are still completing reviews of nearly 166,000 modifications that have been in trials that long. Based on survey data of the eight largest HAMP participants, the Treasury found that 45% of the canceled trials are in an alternate modification. More failed HAMP modifications could enter HAFA after falling into delinquency after the conversion into permanent status.
For modifications that have been permanent for more than six months, 6% have fallen into 60-plus day delinquency again. The default rate, or the percentage of modified loans that are now 90 or more days delinquent, is less than 2% at six months after the conversion. Cary Sternberg, president of Excellen REO, an asset management firm and subsidiary of Titanium Solutions, said that HAMP was designed for those who want to stay in their home, but as prices continue to deteriorate, more homeowners are looking for a way out, either through short sale or deed-in-lieu.
“Then comes HAFA. In recognition of the fact that some borrowers simply could not make payments even if the payment were lower, a more dignified exit strategy was created,” Sternberg said.
The Treasury will not release data on the HAFA program until later in 2010, but many real estate firms and companies are adding staff to their short sale departments. Matt Vernon, REO and short sales executive at Bank of America, the bank with the largest amount of HAMP-eligible loans, said they are doing everything they can to facilitate short sales.
According to the Treasury, the intentions of HAMP and HAFA are very different. HAMP is for those who are committed to remaining in their home, while homeowners interested in HAFA have decided they no longer want to stay there. If they intend to stay in the home, they will work with their servicer to get into another modification program. But Sternberg said in the end, HAFA is a better solution than HAMP. “It is too early to tell what the success rate of the HAFA program will be, but I am betting it will be far better than HAMP,” Sternberg said. “HAMP is a Band-Aid, HAFA is an exit strategy.”
Write to Jon Prior.