HAMP: Is It Helping?

By Alan White

         

Today the Administration released its first report on the number of homeowners helped by its Home Affordable mortgage modification program (HAMP).  While the numbers of trial modifications in the first three months of the program (250,000) may sound impressive, it is much less so when compared with what the industry was doing voluntarily before the HAMP program.  Mortgage servicers modified roughly 370,000 mortgages in the first quarter of 2009, before HAMP was implemented.  Thus, if servicers have substituted HAMP trial modifications for the permanent modifications they did previously, the number of homeowners helped each month has gone down, not up. 

            In reality, it is likely that May, June and July saw some combination of pre-HAMP voluntary modifications that were already in the pipeline, as well as the new 3-month trial mods under HAMP.  Nevertheless, the Administration’s goal to help 3 million homeowners sounds less impressive in light of the three-year timetable, which translates to fewer than 100,000 homeowners helped per month.  In contrast, there are about 250,000 homeowners whose mortgages are being referred for foreclosure each month now, and about 90,000 completed foreclosure sales each month.  Neither of these numbers is showing any signs of peaking or declining, sadly.  The true measure of HAMP’s success will be when we see foreclosure filings and sales begin to return to pre-crisis levels.

            On the other hand, the HAMP program has improved the quality of modifications significantly.  According the Administration press release, 100% of HAMP modifications will reduce the borrower’s monthly payment.  Voluntary modifications previously were reducing payments in only about 50% to 60% of cases. The HAMP report also highlights the fact that some mortgage servicers are doing far more than others.  The HAMP program and reporting will, hopefully, stimulate the underperforming servicers to do better.

            The other bad news is that HAMP does nothing to address the necessary reduction in principal mortgage debt that is a precondition to long-term recovery of the housing market, and the economy.  Modifications that reduce principal have been shown to result in more reliable repayment by borrowers, but so far the Administration and the mortgage industry have vigorously resisted addressing principal reduction.  At this point, the only hope for a permanent solution is bankruptcy reform.