Obama’s Loan Modification programs have been criticized for their lack of results. But what are these results? The March Servicer Performance Report is fresh off the press, so let us have a quick look at what it has to say.
The highlights for HAMP are that more than 230,000 mortgages have been permanently modified. 108,000 loans have been approved by the lender and are simply waiting for the borrower to sign the final papers. That gives us a total 338,000 loans with permanent modifications. The other big newsbyte is that over 1.1 million trial loan modifications are active under the HAMP program. As you all know these trial loan modifications last for three months. If at the end of this period the borrower has provided all the relevant documentation and is up-to-date with his mortgage payments he is given a permanent loan modification. That is, of course, the theory.
According to MHA these loan modifications represent over $3 billion dollars in savings for monthly mortgage payments. The bad news on the report is the number of trial modifications added in the March has dropped to 57,000 from 72,000 in February. The reason for this, according to HAMP’s spin, is that servicers and lenders are requiring upfront documentation before trial modifications start. This has been a bone of contention with critics of the program that see the trial loan modification (without prequalifying the necessary documents) as a way of getting troubled borrowers to pay for three extra months and then deny them the loan modification on the basis of pending paperwork .
The flip side on the reduction of new trial modifications is there has been an increase of 15% in the number of permanent loan modifications approved in March. The story MHA is spinning is that numbers are dropping because of prequalifying filters servicers are introducing. The biggest issue with the Making Home Affordable Program is it doesn’t tackle the real issues of the housing crisis. Interest rate reductions of loans can substantially reduce the cost of a mortgage. A drop of 1% translates into savings $1,500 in most cases. The problem is that high interest mortgages are not the biggest problem any longer. Unemployment is.
MHA understands this and is providing alternatives programs to HAMP that provide specific aid to unemployed homeowners. The latest program for unemployed started this month. It provides loan modifications of mortgage payments to 31% of the unemployed worker’s income for a 3 to 6-month period. The question is will these measures provide real aid to those that need it and not just throw good money at lenders and servicers with little long term benefits for borrowers.
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This Thursday the Obama Loan Modification Plan, HAMP, will be a year old. It was on the 4th of March, 2009 that the Obama administration started the largest and most ambitious homeowner’s aid package since the 1930s. The goal was to stop the wave of foreclosures that was destroying the housing market. The Government’s reply was huge. The aim was to help four million homeowners avoid foreclosure and they were willing to spend $75 billion to do so. How are things looking as we approach HAMP’s first birthday. By December 2009 there were nearly 760,000 loans in the trial stage of the program. This three month trial stage is designed to test if the homeowner will pay his modified loan for three months before the modification is final. However, only 31,000 homeowners had actually received a permanent loan modification by the end of 2009. Of these many had seen only the slightest of changes to their monthly payments. The Obama administration realized they needed to do more, and quickly. This triggered a list of amendments and countermeasures designed to speed up the process and open the doors to more homeowners. Soon it became obvious that the issue was not the interest rates of bad loans that were hurting homeowners but the increasing rates of unemployment that was reducing the income of homeowners that could not afford to pay for their mortgage. In fact, the fastest growing demographic in the foreclosure market consisted of homeowners with prime loans that had lost their jobs. From the beginning of the program, the Treasury Department made it very clear that the program would not cater for families that no longer had an income because of losing their job. The aid was focused on families whose income had shrunk but could still afford the payments of a modified loan. Another issue was the complexity of the loan modification process. Homeowners complained that mortgage servicers were not consistent, lost important documents regularly and did not provide accurate information. Mortgage servicers on the other hand explained that homeowners often did not provide the right documentation and were less than honest when filling forms. Treasury reacted by simplifying the system and providing greater concessions to lenders and mortgage servicers. Industry leaders often made the valid point that the HAMP plan incentives did not cover the costs and it was better for them to continue charging fees from delinquent homeowners and foreclosure proceedings than approve loan modifications. The reaction was to increase the incentives and the arm twisting of lenders that would not comply with the program’s expectations. The incentives did become rather generous for both servicers and borrowers. Every loan a servicer modified came with a $1,000 upfront payment, with an extra thousand dollars every year the homeowners was current on payments. This means the Treasury will pay $1,000 every year the borrower is not delinquent, to reduce the loan balance. However the biggest subsidy was offered to reduce the actual monthly payments of mortgages. If the lender could reduce the monthly payments to 38% of the borrower’s income the government would pay for the cost of reducing the payments to 31% of the family’s income. The problem is that these measures have not been sufficient to stem the increase in foreclosures and new guidelines are being worked on to look for a solution. Unfortunately the prospects do not look good for the second year of the Obama Loan Modification Plan.
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Last Friday Treasury revealed the latest data on HAMP, the Administration’s major foreclosure prevention program. The data has been sold as evidence of the significant progress made from pressuring mortgage servicers. Are loan modifications finally becoming the solution for the mortgage crisis as the Government has always claimed?
Let’s have a look at the figures.
Around 900,000 homeowners have entered the program with a trial loan modification. 66,465 homeowners have received permanent modifications as of December 31st. That’s where the good news lies, November’s figures for permanent loan modifications were half that, at 31,382. This progress is being reported by Treasury as a “significant acceleration of the rate at which borrowers are being approved”. Hard to argue with that when the numbers doubled in a month, but is it enough?
Let’s have a closer look at the figures and the program as a whole.
The program is designed to allow homeowners to enter a three month trial loan modification, during which they are supposed to provide lenders with all the documentation required for a permanent modification. However trials are stretching for much longer. Servicers blame homeowners being slow at handing in paperwork; homeowners blame servicer of losing paperwork and making mistakes. Treasury’s response to this mess has been to allow for longer trial periods, up to 5 months. However mortgage servicers have kept homeowners in what is being called “trial purgatory” for up to nine months.
This seems to be one of the big issues the HAMP program faces, a complete gridlock of loan modification trials. Have a look at these figures:
In October Treasury reported that 487,081 trial modifications had been started. Three months later not even 24% of those trial modifications had been resolved one way or the other. Let’s put this another way 76% of the current trial loan modifications are in limbo. Treasury has pointed out that 46,000 homeowners have been approved for a permanent loan modification but are yet to sign the paperwork that will make it final. Even if this were true it would still mean that 66% are still waiting for a verdict on their loan modification.
Consumers are blaming big banks for creating this loan modification limbo and the figures seem to support that claim. The big four banks, Bank of America, JPMorgan Chase, CitiMortgage and Wells Fargo represent more than 60% of the 3.4 million mortgages eligible for the HAMP program. The best of the bunch Wells Fargo has only completed 13% of its eligible loan modifications. The rest are doing much worse. Bank of America the largest mortgage provider by far is performing the worst, converting only 3% of their 1 million eligible mortgages into permanent modifications.
No matter how Band of America tries to window decorate these figures advertising they have surpassed the 200,000 trial modifications barrier, this is all rather pathetic. We are not even saying they should convert more trials into permanent loan modifications but at least put homeowners out of their misery and tell them what the outcome is, one way or another.
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HOPE produced mixed results in the month of June. On the whole thought it seems like June was a better month for the government foreclosure and debt management counseling service.
HOPE Now program provides counsel for home owners in risk of losing their homes by providing specific advice and debt management workouts to refinance mortgages and arrange loan modifications.
The statistics provided by HOPE NOW itself show a decrease of 5.1% in the overall mortgage modification activity, although, as HOPE itself explains this might be due to the way the statistic is calculated. Apparently for a person to qualify for a loan mod they must undergo a trial period of three months. These pre-loan modification trials do not qualify as loan modifications but are categorized as “trial modification” or “repayment plans” all of which seems to screw the figures a little.
The executive director of HOPE NOW Faith Schwartz is reported as saying: “I am proud of the continued progress made by HOPE NOW servicers and am confident that they are aggressively and proactively using HAMP, as well as other successful foreclosure prevention programs, to help as many homeowners as possible”.
The positive figures Schwartz is referring to are the 310,000 homeowners that completed home mortgage workouts during the month of June, which signifies a 25% increase from the month of May.
All of this occurs in a context where government is flexing its muscles to accelerate loan modifications nationwide providing more incentives for banks to accept (and fast) loan modifications and mortgage refinancing.
If you feel you are in danger of losing your home because you are struggling with your monthly payments contact HOPE NOW for a personalized analysis of your situation and practical help to negotiate and work out your loan modification. It is vital to take advantage of this and other mortgage modification counseling services earlier rather than later as it is much easier (and profitable) to negotiate with a lender before you become a delinquent borrower (i.e are behind in your payments) as you have a much stronger hand when settling and negotiating the outstanding debt.
You can get this free service by calling 888-995-HOPE (4673). Make sure you have your basic mortgage documentation close by as you will be asked some questions by the operators in order to assess your situation.
Beware of current scams that ask for payment for this service, HOPE NOW is a free government aid program that does not request any kind of payment.
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