Bank Loan Modifications Greatly Outpace HAMPs

February 3, 2011 (Chris Moore)
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No matter which side of the fence you sit on when it comes to who you want to blame for the whole housing crisis and no matter how many bank foreclosure horror stories you hear of or read about, there’s one thing you can’t deny, bank mortgage loan modifications outnumber HAMP mortgage loan modifications by almost four to one.

The Treasury Department reported Monday that the government’s Home Affordable Modification Program, or HAMP, had provided permanent help to 521,630 homeowners since the program began in spring 2009. By comparison, over the same period, banks negotiating directly with borrowers have made about two million permanent loan modifications outside the government’s program.

And while bank modification programs are on the rise, HAMP mortgage loan modifications are tapering off. Critics of HAMP say the program has made little impact on the housing market and should be ended. Last week, House Republicans introduced a bill to end the effort, calling it a “colossal failure,” citing that over twice as many borrowers have dropped out of their HAMP trial modifications than have successfully received a permanent loan modification. Ironically, almost half of those who have dropped out of HAMP received a loan modification from a private lender.

Banks say they are doing more of their own modifications, and fewer HAMP modifications, because eligibility requirements for HAMP are more stringent. Once a borrower is deemed ineligible for the government program, a modification worked out directly with the bank sometimes is the best option.

Although Republicans continue their call for the end of HAMP, administration officials continue to defend the plan.

“I think we’ve got to remember that HAMP has achieved over a half-million modifications. These are people that make $50,000 a year, so to sort of write it off and say, ‘Well, it’s a failure,’ I think is not really appropriate,” said Tim Massad, an acting assistant Treasury secretary, in a hearing on Capitol Hill last week.

While critics may say that banks got off to a slow start with loan modifications, others are saying banks have been more willing to modify loan terms because it’s starting to be cheaper than completing a foreclosure, which with the current glut of distressed housing inventory, can take years to process and thousands of dollars in legal fees to complete.

One of the banks that has greatly increased their loan modifications is Wells Fargo. The bank will be holding 20 large scale mediation sessions across the country this year in an attempt to reach out to 150,000 borrowers who have missed payments or who have been in previous loan modification proceedings which they hope will result in new loan modifications.

Loan modifications generally result in reduced interest rates, forgoing late fees or extending the terms of loans. In the third quarter, modifications done in the HAMP program reduced monthly payments by an average of $585, almost double the $332 reduction in payments for modifications done outside the HAMP program

Not every mediation or modification results in significant savings for homeowners and it’s not clear how these modifications will perform over time. But a recent study by the Treasury Department reported that 20.4 percent of year-old modifications were already 60 or more days delinquent.

Tags: HAMP, mortgage, mortgage lenders, loans, borrowers, loan modifications, banks, permanent loan modification, interest rates, late fees, extend loan terms, loan mediation