by Alan White
Those of us in the upper Midwest have blizzards on the brain. On Monday the Treasury Department released its loan-level data files on the more than 2.5 million mortgage borrowers who have sought help from the Home Affordable Modification program. Not surprisingly, the data confirm that homeowners are being done in by paperwork. For example, of the 1.2 million homeowners who were non-accepted (Treasuryspeak for rejected), only 6% were turned down because they failed the net present value test, i.e. because a modification wouldn't make economic sense for the investor. Much more common were denials because the homeowner was not considered to be payment-stressed (20%), not in imminent danger of default (11%), couldn't meet paperwork requirements (21%) or had the misfortune to have an ineligible mortgage (18%). Many of those identified as having withdrawn applications (8%) could also have fallen victim to the paperwork shuffle.
As for the 600,000 who were approved for trial modifications, but then were denied conversion to permanent modifications, only about 25%, i.e. about 13% of all trial modifications, failed to make payments. The dreaded "incomplete request", "request withdrawn" and income-too-high categories account for more than half of the trial modification fallouts. Particularly unjustifiable are the tens of thousands whose permanent modifications were denied based on eligibility or NPV determinations that should have been made before they started a trial modification.
The failure of HAMP is not inevitable. While it may have resulted in fewer than a half a million successful permanent modifications, two and a half million homeowners have sought help. Most of those who fail initially or at the conversion stage are not failing because their cases are hopeless. On the contrary, many are rejected for reasons that suggest workouts are possible (such as those whose debt ratio is not high enough for HAMP.) The program suffers seriously from lack of enforcement, from needlessly detailed and prescriptive rules, and from the Administration's unwillingness to confront the principal reduction issue.