While working as Business Development Manager with a law firm in Washington State offering legitimate loan modifications and Short Sale Negotiatons I have learned a few things about the reality of the programs and would like to share with other Rainmakers~
First of all the current default solutions arena reminds me of Facebook- constant changes only to let its users find out AFTER the harm is done.
The Home Affordable Modification Program (HAMP) has been subject to much criticism. I used to feel that it was the role of the homeowner or in our case the firm to learn all about HAMP, HARP, HAFA, HUD PFS, HAUP, HOPE, EALP, FHA Short-Refi...
Well the firm has close to 100 years of experience in the bankruptcy, mortgage servicing, mortgage banking, processing, default solutions, negotiations and Real Estate experience within their team. The knowledge is there but unfortunately the playing field is not level.
At times we can only shake our heads and TRY to explain to the agents and homeowners of the depth of the mess which goes a little like this-
Loan servicers give on average three times more attention to delinquent borrower in their portfolio than they do on loans where they have no credit exposure, i.e. Government Service Entities (GSE's) Fannie Mae, Freddie Mac, FHA etc.)
WHY?
The traditional compensation model for servicers is based on a flat percentage of a loans outstanding in the portfolio. On conventional loans, servicers are generally paid between 0.25 and 0.375% of total unpaid loan principle in their portfolio. FHA can be as high as .50 basis points.
Every incremental dollar spent counseling borrowers and mitigating the losses of the end investor (not their own losses) is cutting into the servicers margin. While it's true that there are economic incentives in the MHA program intended to cover the added expense of fulfilling HAMP requirements, the chips don't stack up from a business model perspective, otherwise you would see servicers treating HAMP participation as a profit center and doing more - not less - loss mitigation. Instead loss mitigation activities are performed only to the point of meeting their minimum contractual obligation to the investor and at the least incremental expense.
That's not all though. Loan servicers are not the only party involved. From: Principal Reduction Debate: Focused Attention Needed
Ultimately the reason loan principal reduction doesn't work is what economists call asymmetric information: only the borrower has all the information needed to determine whether if they are capable of (and willing) repaying their mortgage debt. It must not be ignored that borrowers often control the variables that lenders use to accurately identify candidates with the ability and desire to repay their loan.
Plain and Simple: It's a two-way street. The success of loan modification programs depends on high levels of foresight among serviceers as well as honest behavior by the borrowers who need assistance and those who do not need assistance.
That being said..with the U.S. budget deficit a major topic of discussion on Capitol Hill, it is not surprising to see HAMP on the Chopping Block.
The following commentary was written by Tim Massad, Acting Assistant Secretary of the Treasury for Financial Stability, in defense of HAMP.
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By Tim Massad
The U.S. House of Representatives is considering legislation that would terminate the Home Affordable Modification Program (HAMP) and deny critical assistance to struggling homeowners. During the debate over this issue, a number of pieces of misinformation have made their way through the halls of Congress and onto the airwaves.
We want to set the record straight on a few key points and share five things that you may not know about HAMP.
1. Currently, about 25,000-30,000 additional homeowners receive a permanent HAMP modification every month. HAMP is continuing to provide critical assistance to struggling Americans who are trying to keep their homes. To date, more than 600,000 homeowners have received a permanent HAMP mortgage modification, and tens of thousands of additional Americans are joining their ranks each month. These homeowners benefit from a median reduction in their mortgage payments of 37 percent – or $500 every month.
2. HAMP provides assistance only to those homeowners who meet prudent eligibility criteria. HAMP wasn’t designed to prevent every foreclosure. The program does not pay for mortgage modifications for investment properties, vacant homes or jumbo loans. HAMP is not designed to help those who can afford to make reasonable payments on their existing mortgage, and it is not designed for those who are unlikely to sustain a modified mortgage even with government help.
3. Money only goes out the door if a homeowner demonstrates that they can make their modified mortgage payments. HAMP uses a “pay-for-success” model to protect the interests of taxpayers. Money is only spent after a homeowner completes a trial period and demonstrates that they can make their modified mortgage payments on time. As a result, terminating the program would simply deny assistance to homeowners who have successfully shown that they are determined to keep their homes and can meet their obligations.
4. HAMP modifications are outperforming industry norms. Data has shown that HAMP modifications are among the most sustainable in the mortgage market. The Office of the Comptroller of the Currency reports that, for the financial institutions that they regulate, the re-default rate for HAMP permanent modifications at six months was about half that of other modifications. Nearly 85 percent of homeowners who received a permanent HAMP modification remain in their modification one year later.
5. HAMP has created needed protections for homeowners seeking assistance from their mortgage company. HAMP established new safeguards for struggling homeowners. To ensure that homeowners have every opportunity to keep their homes, HAMP requires participating mortgage servicers to evaluate homeowners for a mortgage modification before referring them to a foreclosure sale. HAMP requires servicers to adhere to clear timelines when evaluating homeowners for HAMP modifications and established a process for homeowners to dispute their servicer’s decision when they believe that they have been unfairly denied a modification.
Before HAMP, there was little meaningful assistance available to struggling homeowners in the midst of the worst housing crisis in a generation. The program continues to help tens of thousands of additional homeowners every month, and it has set important standards for how the mortgage industry assists homeowners industry-wide. It is structured so that the amount of money spent will be proportionate to the number of people helped; any funds not used will pay down the national debt.
There is no easy way to repair the deep damage caused by the housing crisis. It will take time and sustained effort. But what’s clear is that terminating HAMP and denying critical assistance to struggling homeowners simply isn’t the answer.
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The funny thing is...
Even if the HAMP Termination Act of 2011" (H.R. 839) is passed in the Republican controlled House of Representatives, it must still pass the Democratically dominated Senate. And then it would still need President Obama's signature. The White House has already indicated it would veto the bill if it somehow gained Senate approval, which is unlikely.
Provided for informational purposes only. Information deemed reliable but subject to change without
notice. Qualifying buyers only, subject to credit approval. Licensed by the Department of Corporations
under the California Residential Mortgage Lending Act. This is not a commitment to lend. Equal Housing
Lender. Consumer Loan License NMLS-3240, CL-3240.
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