The Home Affordable Mortgage Program (HAMP) was supposed to be the salve to help solve the housing crisis, some say it's also been a bit like a Band-aid that doesn't stick.
Launched in early 2009 under the United States Treasury, HAMP was designed to help financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. As of August 2012, more than one million homeowners have received a permanent HAMP modification, saving approximately $539 on their mortgage payments each month, and an estimated $15 billion to date. Eighty seven percent of homeowners entering the program in the last two years have received a permanent modification, according to the September edition of the Obama Administration's Housing Scorecard. However, approximately 2.8 million borrowers had their HAMP loan modification application denied or their trial loan modification canceled, according to a recent report for the U.S. Government Accountability Office.
RealtyTrac's U.S. Foreclosure Market for September and the third quarter shows a decrease of 7 percent from the previous month and is down 16 percent from September 2011. September’s total was the lowest U.S. total since July 2007. However, the crisis is not over, there are many who still need help.
What went wrong? Researchers from Columbia University's Business School, the University of Chicago, Ohio State University, the Federal Reserve Bank of Chicago and the federal government's Office of the Comptroller of the Currency (OCC), and the National University of Singapore, analyzed the impact of HAMP.
“The overall impact of HAMP will be substantially limited since we estimate that permanent renegotiations induced by HAMP will reach just about one-third of its targeted 3-4 million indebted households, while adversely affecting the effectiveness of modifications performed outside of the program,” says Tomasz Piskorski, the Edward S. Gordon associate professor of real estate and finance at Columbia Business School and study co-author. “Overall, the program resulted in only modest reduction in foreclosures and did not alter the rate of house price decline, durable consumption, or employment in regions with higher exposure to the program,” he adds.
Wherein lies the blame? “The program shortfall in large part is due to low renegotiation intensity of a few large bank servicers. Their low renegotiation activity, which is also observed before the program – seems to reflect their pre-existing organizational capabilities. The fact that some other servicers, with similar loans, actively conducted modifications under the program suggests that the incentive structure of the program may not have been inadequate per se. Rather, the program failed to account for limited organization capability of some servicers that are related to their low program response,” says Piskorski.
While the study doesn't name names, according the HAMP website, more than 90 mortgage companies, including household names like Bank of America, JPMorgan Chase and Wells Fargo participate.
So 800,000 people who likely could have been helped by HAMP, fell through the cracks because some big banks couldn't get their act together. According to the report, “Servicers with low renegotiation activity in the pre-program period may not have responded to the program since doing so would involve changing their business focus from processing and channeling payments to actively renegotiating loans. In addition, this may have involved significantly altering their organizational capabilities, such as building appropriate infrastructure and hiring and training servicing staff.”
The program's shortcomings weren't limited to the banks. HAMP had some stumbling blocks of its own. HAMP required extensive screening of homeowners seeking a modification. While the intention was good – to help those who were “worthy” of help and not irresponsible folks looking for a lifeboat, but all that paperwork didn't help servicers who were ill prepared for the onslaught.
Where there is finger pointing there are also a couple of thumbs up. HAMP is credited for opening the door for modifications that may not have happened otherwise, as well as for modifications that were more generous than some modifications done outside the program.