HAMP Report Highlights Redefault Rates

Defaults on HAMP loan modifications are increasing at an “alarming rate,” according to a new report by the Special Inspector General for the Troubled Asset Relief Program.

Home Affordable Modification Program servicers have completed 1.28 million first-lien modifications for struggling homeowners who were defaulting on their original mortgage. Over 321,000 of those homeowners have redefaulted.

The oldest HAMP modifications completed in 2009 during the recession are redefaulting at a 46% rate and 2010 HAMP modifications are redefaulting at a 29% to 37.6% rate, according to the SIGTARP report.

IG Christy Romero wants servicers to report the reasons for HAMP redefaults so the Treasury Department, which manages the HAMP program, can get a better understanding of the problems and develop an “early warning system” to prevent future redefaults.

In response, Treasury assistant secretary Timothy Massad noted that redefault rates on HAMP mods are lower than proprietary mods.

“Nevertheless, we will review your recommendations and respond more fully in time,” Massad said in a letter to Romero.

Treasury officials pointed out that HAMP servicers are required to be pro-active and work with borrowers who miss a payment on their modified loan.

“In the event the homeowner cannot bring the loan current without additional assistance, the servicer is prevented from commencing foreclosure proceedings until the borrower is evaluated for any other loss mitigation action,” according to a Treasury paper. “As a result, the majority of homeowners who fall out of HAMP receive an alternative home retention option.”

These options include unemployment forbearance, assistance through the Hardest Hit Fund or a proprietary modification.