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HAMP fact v. Fiction

HAMP fact v. Fiction

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Published by: david_dayen3823 on Feb 11, 2011
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Home Affordable Modification Program (HAMP) ² Fact vs. FictionIn early 2009, the Obama Administration launched the Home AffordableModification Program (HAMP) to help middle class American familiesweather the worst economic downturn since the Great Depression. Thisprogram to date has helped over 570, 000 families stay in their homesand helped neighborhoods avoid the associated blight that comes withvacant and foreclosed homes. However, some have suggested eliminatingthis program. This would be a mistake, as the Treasury Departmentcontinues to help tens of thousands of additional families every month.Put simply, ending HAMP now would mean that struggling families willhave far fewer ways of coping with the worst housing crisis ingenerations. Some have suggested eliminating the program based onincorrect assertions or myths about the program. Here are the facts:1. Assertion: HAMP has failed because it hasn·t helped 3-4 millionhomeowners.Facts: The primary reason we will not achieve 3-4 million permanentmodifications of mortgages is that there are not that many people whomeet the eligibility criteria³criteria which ensure that taxpayer fundsare used wisely.Today, there are roughly 5 million delinquent mortgages. Only about 1.5million are eligible for HAMP, because HAMP is not available for: mortgages in excess of $729,750; mortgages on second homes or investor-owned properties; mortgages on vacant homes; homeowners who can afford to pay their mortgage without governmentassistance; and homeowners with mortgages that are unsustainable even withgovernment assistance.Nearly 580,000 homeowners have had their mortgages permanentlymodified under HAMP, and an average of 30,000 more are being addedeach month. They are saving an average of $527 a month, with aggregatesavings to date totaling more than $4.5 billion.Over 1.4 million American homeowners have received a trial modificationwhich provided temporary relief, and most of those then received someform of further assistance, whether within or outside of HAMP.HAMP has also helped millions of people indirectly, because HAMP·sstandards have been adopted across the industry to standardize loanmodifications. Fitch·s most recent report states that´Fitch believes that the HAMP program, while not meeting its volumeprojections, did help to bring a needed standard to varied programsoffered prior to its introduction and to focus attention on the use ofmods. Establishing a priority in steps, target interest rate and payment
allowances, and a net present value calculation resulted in a moreconsistent application of efforts.µThe fact that the program has not achieved 3-4 million permanentmodifications is no reason to end it, particularly when the number ofAmericans that HAMP helps continues to grow each month.2. Assertion: HAMP will cost $75 billion, which is far too much money tospend on a program that won·t help that many people.Facts: The amount of TARP funds allocated to HAMP is $29 billion.Treasury makes payments only for homeowners in permanent HAMPmodifications and only so long as those homeowners continue to maketheir payments. In short, HAMP only pays for success.For example, if only 700,000-800,000 modifications are achieved, as theCongressional Oversight Panel estimates, the amount of TARP funds usedwould be in the range of $5 billion to $7 billion. If the number ofmodifications is twice that, the amount of TARP funds would be in therange of $11 billion to $14 billion. (These numbers assume about 55% ofthe modifications are for GSE loans, the payments on which would comefrom the GSEs, not from TARP.)We want to be sure we have the funds to help all those who need thehelp and we will continue to reach new families through the end of 2012.And whatever is not spent goes to pay down the national debt; it will notbe used for any other purpose.3. Assertion: There have been more trial modifications cancelled ²over700,000³than there are current permanent modifications.Facts: The fact that many trial modifications were cancelled or did notbecome permanent is not evidence of failure; it is evidence of HAMP·sstrict and sensible conditions on using federal funds. Most of those trialsdid not satisfy the eligibility criteria noted above. In other cases,homeowners could not document their income, or could not make theirpayments during the three month trial period.The reason the conversion rate from trial modifications to permanentmodifications was initially so low³about 1/3³was that at the beginningof the program, homeowners were accepted into trial modificationswithout first providing written documentation of income or hardship. Wefelt that was necessary because the gravity of the crisis required quickaction.4. Assertion: HAMP is a failure because Treasury has spent less than $1billion of the $29 billion allocated for the program.Facts: HAMP was designed so that money is spent only for permanentmodifications and only gradually, over a five year period. If a homeownerdefaults, Treasury stops paying. So the fact that payments are staged isfurther evidence of the prudent design of the program.
5. Assertion: HAMP is not needed because the industry will enter intomodifications anyway.Facts: The servicing industry was not and still is not fully equipped todeal with this crisis. Ending HAMP now will mean that the fate ofstruggling homeowners will be solely up to the servicers³the sameservicers whose bad mortgage lending practices contributed to the crisis,whose poor implementation of HAMP has been widely criticized, and whohave recently acknowledged failures to follow the law in pursuingforeclosures.The industry has improved since HAMP was launched and is offeringmodifications today, but that is largely because HAMP set standards thatthe industry needed and subsequently adopted. These include theuniversal affordability standard³a 31% debt to income ratio which helpsensure that homeowners can sustain payments. And HAMP created a ´netpresent valueµ tool to enable servicers to evaluate whether a HAMPmodification provides a better financial outcome to the investor relativeto a foreclosure. Servicers are required to follow investor guidelineswhen modifying loans, including demonstrating that actions taken are inthe investor·s best interest. Before HAMP was launched, very fewmodifications were made, and very few of those were sustainable.Moreover, the process HAMP created for evaluating borrowers is what hasenabled servicers to then offer their own modifications to homeownersthat do not meet the HAMP requirements.HAMP modifications thus far appear to be more sustainable. The Office ofthe Comptroller of the Currency recently stated that ´HAMPmodifications were performing better than other modificationsimplemented during the same periods at the end of the third quarter of2010. These lower post-modification delinquency rates reflect HAMP·semphasis on the affordability of monthly payments relative to theborrower·s income, verification of income, and completion of asuccessful trial payment period.µ In Treasury·s own latest monthlyreport, we show that at twelve months, more than 80 percent ofhomeowners remain in a permanent modification.HAMP continues to set standards that the industry needs. These includestandards for borrower protection, which ensure that a borrower that isbeing evaluated for a modification is not foreclosed upon. And evenproprietary modifications are showing improved redefault rates, adevelopment that Fitch·s most recent report attributes to ´morestandardized qualification criteria for mods, coupled with a focus onlowering monthly paymentsµ ² a direct result of HAMP·s influence on theindustry. Ending HAMP now is not the way to end this crisis.6. Assertion: SIGTARP has said HAMP has failed to realize the TARP goal

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