Issues With HAMP Numbers
Irvine, CA-At least one market insider finds the Home Affordable Modification Program has created a new dynamic between the scale of demand for loan modifications and real possibilities for those in need.
Andy Firoved, CEO of loan modification services provider Homeowner Toolbox Inc. here, says HAMP misconceptions risk putting both servicers and homeowners at a disadvantage. In his view, more homeowners will be helped if the industry strikes a better balance between required and voluntary participation in HAMP and a better use of existing tools and services.
If we do the math, he says, the fifteen lenders who have signed up for the program represent about 15% of the market share.
"The Obama administration has gone on the record saying they estimate helping four million homeowners. According to the numbers that are issued, and based on the covenants of the agreements made with HAMP, but based on our own calculations, only about 941,000 homeowners will be helped."
One example is Bank of America, which has a program participation capital of $798 million in the HAMP, he says. "It means that $798 million is the maximum amount of money they are allowed to receive in government contributions towards this program."
A simple calculation shows it is not as much as it seems, according to Mr. Firoved, since modification costs per individual loan, or the amount of HAMP funds needed to assist one homeowner, is about $16,000. "You've got a servicer incentive payout of roughly $4,500, you've got a borrower incentive payout of roughly $5,000 and an investor payout incentive of $6,500, all of which make a total of $16,000. And if you divide the $798 million with that amount the result is 50,000 loans. For Bank of America to be able to only help 50,000 loans using HAMP assistance, that is nothing in the dynamic of the probably 12 million people they are servicing."
Similarly, he says, his calculations that the 15 lenders who have signed up cannot help four million loans, but about 941,000. "The government if off by roughly three million people that they are not going to help, but they say they're going to help."
While he agrees that "HAMP intentions are great," he warns that its power to help is still limited compared to demand. "We're just scratching the surface. It's a great program but how you implement it and how it is carried out is where the problem lies."
Asked whether he sees a better way to approach the problem, he argued that if every lender signed up for the program government efforts "would probably get closer to the goal but the problem is that based on the number of lenders that have signed up, it just is not where they need it to be."
Another major problem for servicers is that the HAMP promise is bringing additional homeowners to the loss mitigation market. Servicers are overwhelmed by the volume of customer calls and not always able to keep up with quality customer service or connecting them with the right bank representative. "It is hard because we now have floods of people actually trying to qualify for those 941,000 modifications."
Adding to that is the complexity of HAMP. Most homeowners do not understand how the program applies to them even though they can read documents. Historically people have used a loan officer or a mediator to discuss a mortgage loan. Now many people are gathering information online and calling the banks directly, which often ends up in failure to communicate and understand what financial guidelines apply to them.
Currently Hope Now and its network of industry service providers dedicated to foreclosure prevention, as well as other customer counseling service providers, are engaged in assisting homeowners in distress. Nonetheless, since the number of homeowners in need of assistance is estimated at bout 80 million, Mr. Firoved says, the scale of the demand indicates there is room for a diversified approach to counseling and loan modification assistance.
He means combining live one-on-one or face-to-face counseling and loan evaluation with online solutions that can handle millions of customers simultaneously.
The best result is always to talk to a real person, he agrees, but often homeowners are pressed for time, he says, and technology can help.
One such tool is the Homeowner Toolbox online portal.
"It is a pre-approval engine that allows the system to do the legwork for the lender and servicer who is doing modifications. It works like some kind of a virtual loan officer," he says. "We put these deals into a servicer's lap at no cost to them."
Homeowner Toolbox charges users $99 per loan that is 100% refundable if they do not get a modification. "Keep in mind that nonprofits get paid by servicers at least $250 per person they counsel. We give servicers the option for a fraction of that cost using a system that is automated and scalable," Mr. Firoved said. "If a servicer chooses to supplement it, homeowners do not have to pay."