The HAMP and HAFA programs have not done the jobs they set out to do, relieving several million Americans from the distress of their inability to make their mortgage payments. But with the size of the job they were commissioned to do, it is too early to pull the plug on them.
Take a look at the Resolution Trust Corp. It took this government agency more than five years to dispose of assets it inherited from insolvent thrifts.
The RTC took some flak for selling off some of the assets too cheaply, but it was a thankless job that it did as well as could be expected. If it had been shut down after two years it would have been seen as a complete failure.
Similarly, Laurie Maggiano, director of policy, homeownership preservation office of the Department of Treasury, told the Mortgage Bankers Association’s National Mortgage Servicing Conference in Dallas that in 1999, she put together a loss mitigation program for the Federal Housing Administration. The first two years were a total failure, but by year five the program was successfully handling 100,000 cases.
The HAMP loan modification program has taken on about 600,000 cases, with a 12-month delinquency rate of a very respectable 14%, she said. (Private modifications by servicers have been about twice as many as government efforts.) That means that hundreds of thousands of borrowers have been given a second chance at paying their mortgages and are doing so successfully, at least for now.
As for the ones that wash out (and it will take another year or two to see the final percentages of redefaults), they have been taken out of the foreclosure clog and shoved a few more months down the road. This will make the foreclosure crisis take longer to resolve, but it also helps take off the downward pressure on home values that is having such a terrible effect on the housing and mortgage industries. Breaking that freefall will be the first step in the housing recovery (and there have been some areas of the country that are starting to see it).
The HAFA short sale program has seen “tepid” results, Maggiano told the mortgage bankers, but Treasury has met with servicers and at the end of December announced changes to the program that should improve it.
In one announcement that will make HAMP servicers happy, Maggiano said Treasury intends to stop issuing new policy pronouncements about the program.
