The government's Home Affordable Modification Program has plenty of critics who are disappointed with its slow implementation and limited impact in preventing foreclosures.
A report by the Congressional Oversight Panel says HAMP continues to "lag well behind the pace of the foreclosure crisis," noting that the Treasury Department is still "struggling" with the effort.
"It now seems clear that Treasury's programs, even when fully operational, will not reach the overwhelming majority of homeowners in trouble," the COP report says. Congress created COP to provide independent assessments of the $700 billion Troubled Asset Relief Program, which provides funding for HAMP.
Treasury reported that HAMP servicers approved permanent loan modifications for 60,700 previously delinquent homeowners in March, up from 52,900 in February and 50,400 in January. Department of Housing and Urban Development secretary Shaun Donovan said many critics point to the millions of homeowners at risk of foreclosure.
However, the 60,600 HAMP permanent modifications in March roughly equals the number of actual foreclosures per month. "We are getting to a significant scale," the HUD secretary told the Senate Banking Committee last week. In addition, HAMP was not designed to stop every foreclosure. "But it can make a real difference," he said.
The latest HAMP report shows that 230,800 borrowers have received permanent modifications under the government program, a nearly 100% increase from Dec. 31. Another 780,000 borrowers are in payment trials, down 6.5% from February. Borrowers in the trials have their monthly mortgage payments reduced to 31% of income.
Some observers believe the current pace is unsustainable and they expect the number of permanent modifications and borrowers in the three-month trial modifications to level off or decline. But that may not be true for some of the larger HAMP servicers, like Bank of America that was slow coming out of the blocks.
"We continue to demonstrate momentum executing HAMP," said B of A Home Loans' president Barbara Desoer. B of A has completed 32,900 permanent HAMP modifications so far with another 38,000 permanent modifications awaiting the customer's signature.
"For several months, we have led all servicers in virtually every category of the (HAMP) report and anticipate this month we will take the lead with the number of completed permanent modifications as well," she told a House committee shortly before Treasury released its March HAMP report.
The report showed that B of A pulled ahead of JPMorgan Chase in March. Chase has completed 31,460 permanent modifications. Chase Home Lending chief executive David Lowman told the same congressional committee that HAMP modifications are performing "noticeably better" than modifications the industry performed in the past.
Based on Chase's experience, 88% of completed HAMP modifications are current three months after completion. "Despite reports to the contrary, HAMP modification has been strong, helping hundred's of thousands of homeowners achieve affordable mortgage payments," Mr. Lowman testified. (Chase and B of A have proprietary modification programs that also provide relief from struggling homeowners.)
However, critics point to the fact that 2.8 million homeowners received foreclosure notices in 2009 and the number of foreclosures is expected to increase in the coming quarters. "The growing number of homeowners facing foreclosure vastly outpaces industry's voluntary efforts to adjust mortgages to affordable levels," said Kathleen Day, a spokeswoman for the Center for Responsible Lending.
"Lawmakers and policymakers need a new approach, one that is mandatory and includes principal writedowns and allows bankruptcy judges to modify mortgages that otherwise would end up in foreclosure," she said.
Bank of America, which is moving ahead with a principal reduction program, is also reconsidering its opposition to the use of bankruptcy for borrowers who can't be helped by HAMP. "As we have gone through the lessons that we have learned with modifications programs, there is probably some segment of borrowers for whom it would be an appropriate alternative," Desoer testified.
Meanwhile, Hope Now executive director Faith Schwartz said servicers are conducting more outreach to troubled borrowers and streamlining the HAMP application process. "We are encouraged by the 15% increase in permanent modifications completed since February," Schwartz said. "We expect to see a further increase in trial modifications becoming permanent."
