Ocwen Financial Corporation has one of the industry’s most impressive track records when it comes to restructuring loans under the federal guidelines of the Home Affordable Modification Program (HAMP). Thecompany is converting trial mods to permanent status at a rate that is 10 to 20 times higher than some of the biggest banks. And the Florida-based servicer is ensuring borrowers are given sustainable solutions. Ocwen says its three-month re-default rate on HAMP modifications is under 5 percent – well below the industry’s average range of 19 to 34 percent.

Based on his company’s experience and success with the federal program, Ocwen President Ronald M. Faris proposed enhancements to HAMP in testimony before Congress. Ocwen believes these enhancements – which include principal writedowns and requiring underperforming servicers to outsource their HAMP processes – would make the program more effective and provide relief to a wider scope of distressed homeowners.

Testifying before a House Oversight subcommittee, Faris said HAMP is a “well designed response to the mortgage crisis” and commended “the Treasury Department for its aggressive implementation of the program.” But he also offered up several recommendations to improve the program.

Faris urged the administration to make principal reductions a bigger part of the modification equation. “Principal reduction modifications are needed to overcome the ‘negative equity’ problem,” Faris testified. “This is a primary driver of defaults on mortgages and re-defaults on modified mortgages.”

He explained that in Ocwen’s experience, negative equity increases the chance of a re-default by 1.5 to 2 times, and noted that approximately 15 percent of all Ocwen’s loan modifications involve some element of principal reduction.

Faris also told lawmakers, “Almost a year into HAMP, too many homeowners facing foreclosure are having difficulty getting their loans modified. In our view, this is due mainly to a lack of sufficient capacity and expertise in the industry to handle the volume.”

Faris argued that too many servicers are not producing the results needed to achieve the program goals. He said the Treasury should be empowered to redirect servicing for loans held by companies that aren’t performing up to par, and outsource their HAMP initiatives to those companies that have the capacity to execute trial mods and convert them to permanent solutions.

Ocwen’s president also petitioned for the administration to drop the debt-to-income (DTI) ratio used in HAMP configurations below 31 percent. Faris says one out of every four HAMP applicants is rejected for failing to meet this standard.

“HAMP should instead use a flexible ‘residual income approach’ to determine a payment that the homeowner can actually afford,” Faris told the subcommittee. “Alternatively, there should be either an across-the-board DTI of 28 percent or a sliding-scale DTI that varies based on the number of dependents.”

Faris also suggested that additional funding be made available to housing counseling groups. “Grass-roots organizations… are providing much needed homeowner outreach and counseling. We urge financial support for any HUD-certified counseling organization assisting homeowners through a successful permanent modification under HAMP,” he said.

According to Faris, Ocwen’s success in modifying mortgages for distressed homeowners lies in offering affordable and sustainable loans, which in turn results in more cash flow for investors than they would get from a foreclosure.

He pointed out that Ocwen has invested over $100 million in research and development to build loan servicing technology that incorporates behavioral science for effective customer communication and is also scalable for high volumes.