Posted on Thursday, March 25, 2010
The Home Affordable Modification Program (HAMP) will fall far short of the administration’s promise to prevent foreclosure for 3 to 4 million homeowners, according to one federal watchdog.
Neil Barofsky, special inspector general for the Troubled Asset Relief Program, says HAMP’s “disappointing results have raised questions about program effectiveness.” He’s determined that the Treasury Department has set targets that aren’t “meaningful” and that HAMP is “particularly vulnerable to re-defaults,” which will mean throngs of borrowers will end up facing foreclosure anyway and the program’s success rate will go even lower.
A year into the program, and Treasury officials have changed their tune about the numbers. According to Barofsky, the administration now says that 3 to 4 million troubled homeowners will be “offered” assistance through HAMP, but only 1.5 to 2 million will actually be given permanent relief over the course of the four-year program.
The special inspector general says the latter will be “only a small fraction of the total number of foreclosures that will occur during that period.” This leads us to question whether HAMP is worth the resources being expended or whether the program needs to be re-vamped to actually help more borrowers.
Rather than acknowledge the program’s failure, Treasury is trying to confuse the American people by counting HAMP’s higher number of temporary modifications — fewer than one-third of which are successfully converting to permanent ones — toward the goal.
As of the end of February, only 170,000 borrowers had received permanent HAMP modifications.
On top of the diminished count of homeowners to receive actual help through HAMP, Barofsky says the program is fundamentally engineered to have a high re-default rate. By Treasury’s own estimates, four out of every 10 homeowners – in either a trial or permanent HAMP mod – will eventually turn delinquent again.
Barofsky says this is because of several inherent flaws in the program:
Non-mortgage debt is not factored into the equation, which can affect a borrower’s ability to pay;
The HAMP mod period only lasts for five years, after which a borrower’s payments will start to go up automatically;
Treasury has been unsuccessful in getting servicers to modify second liens, which saddle 50 percent of at-risk borrowers;
And of course, that “walk-away” trigger – negative equity.
The House Committee on Oversight and Government Reform is holding a hearing Thursday to discuss the government’s foreclosure prevention efforts and examine whether HAMP is truly preserving homeownership.