Much-ballyhooed at its debut, the federal Home Affordable Modification Program (HAMP) has fizzled over the past year, reaching far fewer borrowers than initially estimated. But that doesn’t mean no borrowers have been getting mortgage modifications.
Local housing advocates say private servicers are picking up the slack – often to their own advantage – by first denying HAMP modifications, then offering many borrowers “in-house” workouts.
“We all know that HAMP is out there, and we all know that it hasn’t been a very successful program,” said Deborah Broaden, director of homeownership programs for HAPHousing, a Springfield-based affordable housing nonprofit. She serves in a similar capacity at the Western Massachusetts Foreclosure Center. “Many [servicers] are absolutely denying people under the HAMP, and then trying to give them in-house mortgage modifications.”
The HOPE NOW alliance, a national coalition of major servicers and community groups formed in the wake of the subprime crash four years ago, reported completing 75,733 mortgage modifications nationwide in December 2010 compared to just 30,030 permanent HAMP modifications. Overall, HOPE NOW says their members completed more than 1.2 million private modifications for 2010 versus a little more than 500,000 HAMP modifications.
In Massachusetts, 13,095 borrowers have received permanent HAMP modifications since the program began in April of 2009, with another 3,742 borrowers still in the trial stage, according to the Treasury Department’s December HAMP report card. HOPE NOW members completed 17,777 Massachusetts modifications in 2010 alone.
No Limits
The more stringent requirements of HAMP are part of the reason private modifications are becoming more popular. For example, HAMP excludes second homes and those with jumbo mortgages from eligibility. The terms loan servicers may offer under HAMP are also restricted almost exclusively to low, fixed-rate, 30-year plans, and monthly payments can’t exceed 31 percent of a borrower’s gross monthly income.
But those same limitations often don’t apply to private modifications.
“They’re not as constrained,” said Bill Cotter, deputy director for the Boston Home Center, a city agency under the Department of Neighborhood Development that provides financial education and financial assistance to income-eligible homebuyers and owners. Lenders are sometimes more willing to reduce principle in a private modification, Cotter said, in which they control the interest rate and other loan terms.
And having process the loans through the HAMP screening process can make it easier to identify borrower who may be suitable for mods.
“After all this effort to get the government program in place, people have protocols and processes in place that can help pull-through modifications,” even if the borrower doesn’t qualify for the HAMP program itself, said Faith Schwartz, executive director of HOPE NOW. “There’s a little bit of a safe harbor.”
This fall’s robo-signing debacle has also prompted servicers to be more accommodating to those who might have previously failed to qualify for a modification, said Carla Roy, a foreclosure counselor at the Housing Assistance Corp. on Cape Cod.
“The lenders are bending over backwards to let [borrowers] have a second chance,” Roy said. “Even if they’re denied, [servicers] go, ‘Fine, resubmit all your information, we’ll do a second look.’”
What’s The Catch?
But Broaden expressed doubts about whether private modifications are as beneficial as they might first appear. Unlike HAMP modifications, several private deals she’s seen have come with strings attached, including balloon payments or adjustable rates which only kick in after a few years. When they do, even the modified payment may no longer be affordable for the borrower.
But to distressed homeowners focused on making their next monthly payment, these dangers may not be readily apparent.
“When we’re working with our clients… we’re pushing back [on some of the private modifications],” Broaden said. “We’re getting back to the lender and saying, ‘This is not affordable, we see here a balloon payment, this is a problem, that’s a problem.’ And we’re helping some of the homeowners not fall in that trap.”
But even a temporary modification can be of help, according to Roy.
“Even if people are just getting five-year [modifications], that’s certainly helpful because in five years a lot of decisions can be made,” Roy told Banker & Tradesman. “You can decide whether you might want to sell your home and downsize. You also might be gainfully employed again. A lot can happen. Bottom line is this: If people can get something that’s affordable, that’s a fixed rate, it’s a win.”
Schwartz, too, said that for most homeowners, any modification is better than foreclosure, and the longer the process is drawn out the more likely foreclosure becomes.
“We’re seeing much longer timelines in foreclosure than ever before,” said Schwartz, with average delinquencies for loans which have been foreclosed exceeding 500 days in some parts of the country. “My concern with that is the longer you are delinquent the harder it is to get a modification.”
Calls to the Treasury Department and Bank of America – among the largest servicers of mortgage loans in the country – seeking comments for this story were not returned by press time.
