A government watchdog's quarterly report to Congress released on Wednesday found that the participation numbers for the Department of Treasury's Home Affordable Modification Program (HAMP) have fallen short of original predictions in the program's first six years of existence. But Treasury says there is more to the story than those numbers.
The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) reported in its Q1 2015 Report to Congress that from the time Treasury began requiring servicers to report HAMP outcomes on December 1, 2009 (seven months after HAMP began) through April 2015, 5.7 million homeowners applied for assistance through the program, according to Treasury's official HAMP database. About 4 million (about 70 percent) of those who applied for assistance through HAMP were turned down by servicers, according to SIGTARP.
HAMP was launched in February 2009 by the Obama Administration under TARP. At the time, the Administration estimated the program would help 3 to 4 million struggling homeowners avoid foreclosure and save money with lower mortgage payments. HAMP was originally scheduled to expire at the end of 2012, but has been extended three times. The latest extension allows the program to continue until the end of 2016.
SIGTARP's report poses questions regarding the lower-than-expected HAMP participation numbers, such as whether or not enough homeowners have applied for HAMP assistance, whether or not the eligibility requirements to participate in HAMP are too strict, or whether or not mortgage servicers have wrongly denied eligible homeowners participation in HAMP.
"HAMP has directly helped more than 1.5 million homeowners permanently modify their mortgages and indirectly assisted millions more by setting new standards for the mortgage industry that have led to more affordable and sustainable private modifications," said Mark McArdle, Treasury Chief of the Homeownership Preservation Office. "Treasury closely monitors the number of HAMP denials and has made changes to the program to simplify documentation requirements and expand eligibility criteria to assist more homeowners. In addition, Treasury has robust compliance procedures to test whether servicers are adhering to program requirements and we’ve publicly reported on these findings since 2011. In recent years, we have seen significant improvement in servicers’ compliance with program guidelines, including proper evaluation and denial decisions."
In order to address the top reason for HAMP denials, which was incomplete paperwork or documentation submitted by the borrowers, Treasury has simplified documentation requirements multiple times, McArdle said. Most recently, Streamline HAMP was introduced to target seriously delinquent homeowners who have not completed a HAMP modification application. To address the second most common reason for HAMP denial, which was the borrower had a front-end debt-to-income ratio of less than 31 percent, Treasury expanded the eligibility criteria in 2012 through HAMP Tier 2 to provide a more flexible DTI ratio. Other changes were made at that time, including allowing modifications of mortgages on certain rental properties, according to McArdle.
As a result of the improvements Treasury has made to HAMP over the years, the number of denied HAMP applications has been steadily declining each year since 2012. That year, the number of denied applicants reached 998,000. In 2013, that number decreased by almost 50 percent down to 523,000. In 2014, the number dropped to 334,000, and for the first four months of 2015, the number was 100,000.
Treasury found in its Q1 2015 Making Home Affordable report that many of the homeowners who do not qualify for HAMP find alternative solutions to resolve their delinquency. Out of the homeowners who were denied HAMP mods or whose HAMP mods were cancelled, 58 percent received an alternative modification or resolved their delinquency (that share increases to 71 percent when figuring in non-home retention solutions such as short sales or deeds-in-lieu of foreclosure). Only 22 percent of those who did not qualify for HAMP ended up in foreclosure, according to Treasury.
"Notably, HAMP also requires mortgage servicers to evaluate homeowners who do not qualify for HAMP for all other assistance options offered by the servicer," McArdle wrote in a letter to SIGTARP dated July 29, 2015. "This is an important protection for homeowners and gives them another opportunity to get help and avoid foreclosure. As noted in Treasury's MHA program performance reports, the majority of homeowners who do not receive a HAMP modification find solutions through an alternative modification, short sale, or otherwise resolve their delinquency."
Also, according to HUD's Housing Scorecard for June 2015, the industry completed more than 4.4 million proprietary modifications from April 2009 to April 2015. Combined, more than 9.6 million homeowners received assistance through either a permanent modification (including HAMP) or an alternate form of mortgage assistance from April 2009 through May 2015, according to HUD.
McArdle also noted that Treasury "employs robust compliance procedures" to ensure that servicers are following HAMP requirements and not improperly denying applications to the program. Those procedures include reviewing random samples of loans. Treasury has withheld financial incentives from servicers who perform poorly in compliance reviews, and as a result, servicers' compliance with HAMP guidelines has seen significant improvement, McArdle said. Treasury continues to modify compliance guidelines as necessary.
To view SIGTARP's complete report, click here. The HAMP portion of the report begins on page 97.
To view the government's Making Home Affordable Q1 2015 progress report, click here.
To view a copy of HUD's Housing Scorecard for June 2015, click here.