HAMP progress

7 Mar 2011.

Short term effect on liquidations: HAMP's biggest effect so far has been to temporarily slow foreclosures, due to a freeze imposed on all loans in trial modifications. But the net increase of 6 thousand loans so protected in January is small compared to about 75 thousand monthly foreclosure sales.

Short term effect on delinquencies: HAMP is currently helping to decrease the backlog of seriously delinquent loans: As trial modifications successfully convert to permanent, delinquent loans are recorded as “curing” to current. However the number of active permanent modifications went up by only 17,000 in January, which is almost insignificant in the face of millions of seriously delinquent loans.

Long term effect on foreclosures: For now it would appear that the number of modifications might reach about 600 thousand. Something like half will eventually re-default, leaving perhaps 300 thousand genuine successes. That is a small fraction of the millions of loans now seriously delinquent or in the foreclosure process. (Background on HAMP.)

Clippings below covered through 31 Jan 2011.

Borrower debt (31 Jan 2011) Back-end debt-to-income ratio (ratio of total monthly debt payments to monthly gross income), median after modification, 63%.


Disposition of cancelled trials (6 Mar 2011)

Through December, the outcome of trial plan cancellations was home forfeiture for 27% of homeowners (“in the process of” a short sale, deed in lieu, foreclosure start or foreclosure completion). This fraction is rising over time.

HAFA and 2MP (25 Oct 2010) These programs went nowhere. According to SIGTARP, “As of September 30, 2010, approximately $1.6 million in TARP funds had been paid to investors, borrowers, and servicers in connection with 342 short sales or deeds-in-lieu completed under HAFA ….

As of September 30, 2010, approximately $10,500 in TARP funds had been paid to servicers in connection with 21 modifications under 2MP.”


Servicers may not be motivated (20 Jul 2010) When a borrower fails to make payments, servicers are still required to deliver those payments to bond holders. They often borrow the money to do so. More than one source says the borrowing costs on delinquent payments outweigh the incentives paid not to foreclose under HAMP. It is possible, then, that some servicers are not really motivated to make the program a success.

• Progress reports are at http://www.treasury.gov/initiatives/financial-stability/results/MHA-Reports/Pages/default.aspx
• Program update announcements are at https://www.hmpadmin.com/portal/news/announcements.html

• Large scale mortgage modification for a higher level view.

Selected Commentary:

• 21 Feb 2010. The ultimate success rate of HAMP may be only 2%
• 12 Mar 2010. Update of HAMP ulitmate success rate -- perhaps 3%
• 14 Dec 2010. COP report shows low impact of modifications on foreclosures
• 23 Dec 2010. 23-the_resurrection_of_hamp
• 31 Jan 2011. 31-hamp_continues_to_have_a_small_effect

28 Jul 2009. Reuters.

http://www.reuters.com/article/ousiv/idUSTRE56R6UH20090729

“Subprime mortgage companies warn on U.S. foreclosures. By Al Yoon”

“Companies forming the Independent Mortgage Servicers Coalition … group collects and distributes payments on more than $700 billion in loans, according to its leader, Carrington Mortgage Services of Santa Ana, California. …

Implementing [Home Affordable] means giving delinquent homeowners more time fix their loans, which to servicers will the boost costs of extending payments to investors as contractually promised. …

Bruce Rose, chief executive officer and general partner of Greenwich, Connecticut-based Carrington Capital Management, LLC, which owns CMS. Rose attended the [recent Home Affordable] meeting with Treasury. …

The costs of borrowing to finance delinquent payments to bond investors far outweigh expected revenue from incentives paid by the government, Rose said. …

S&P ratings and bank credit lines give servicers incentives that run counter to public policy, he said. To reduce discounts assessed by rating companies, and to lower borrowing costs from banks, servicers would have to foreclose faster, not more slowly, as would be required under Obama's plan, he said.”

12 Aug 2009. Credit Slips.

http://www.creditslips.org/creditslips/2009/08/hampis-it-really-all-about-the-money.html#more

“HAMP–Is It Really All About the Money? by O. Max Gardner III”

“The New York Times reported about ten days ago that the HAMP mortgage servicers were reluctant to engage consumers in modifications because the companies collect such lucrative fees on delinquent mortgage loans. … As a consumer's bankruptcy lawyer, I have made a very good living filing adversary proceedings against mortgage servicers for the misapplication of mortgage payments and for the unlawful imposition of fraudulent legal fees and other charges. … in many cases the financial incentives for the servicers are totally inconsistent with the financial rights of the bond holders in a securitized trust.

The real problem for servicers is not just a desire to make more money but their almost total inability to comply with HAMP. The problem with the HAMP plan is that it fails to take into account the normal obligations of servicers under their respective Pooling and Servicing Agreements. In most cases, a servicer is obligated to advance to the Trustee for the securitized mortgage trust the monthly principal and interest payments for every loan that has defaulted. This can be a massive monthly financial obligation. Most servicers are not allowed to recover these “P & I Advances” until the property is foreclosed and then sold as Real Estate Owned (REO). More importantly, HAMP forces mortgage servicers to act as “full-document” mortgage loan originators. Most mortgage servicers have no experience, training or knowledge about how to originate a mortgage loan. Yet, this is exactly what HAMP is asking them to do. The $1,000 HAMP modification fee and the annual $1,000 success for performance HAMP fees do not even begin to cover the expenses the servicers must incur in order to fully comply with the HAMP “origination” rules. As a result, the so-called “financial incentives” for servicers to modify loans are totally unrealistic and fail to take into account how this system really functions.

Accordingly, in the final analysis it really is about the money but just a lot more and for different reasons than has been reported by the media. There was “no hope” for the “Hope Now” program and there is no chance to ramp up the HAMP.”

19 Jan 2010. US Treasury press release.

http://makinghomeaffordable.gov/docs/report.pdf

“Making Home Affordable Program: Servicer Performance Report Through December 2009”

28 Jan 2010. Treasury Supplemental Directive 10-01.

http://www.treas.gov/press/releases/tg516.htm

“Home Affordable Modification Program – Program Update and Resolution of Active Trial Modifications”

“A significant program change is a requirement for full verification of borrower eligibility prior to offering a trial period plan. Effective for all HAMP trial period plans with effective dates on or after June 1, 2010, a servicer may only offer a borrower a trial period plan based on verified income documentation in accordance with this Supplemental Directive. …

This Supplemental Directive provides guidance to servicers of first mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac (Non-GSE Mortgages). …

Supplemental Directive 09-01 gave servicers the option of placing a borrower into a trial period plan based on verbal financial information obtained from the borrower, subject to later verification during the trial period. Effective for all trial period plans with effective dates on or after June 1, 2010, a servicer may evaluate a borrower for HAMP only after the servicer receives the following documents, subsequently referred to as the “Initial Package”. The Initial Package includes:

• Request for Modification and Affidavit (RMA) Form,
• IRS Form 4506-T or 4506T-EZ, and
• Evidence of Income …

Within 10 business days following receipt of an Initial Package, the servicer must acknowledge in writing the borrower’s request for HAMP participation by sending the borrower confirmation that the Initial Package was received, and a description of the servicer’s evaluation process and timeline. If the Initial Package is received from the borrower via e-mail, the servicer may e-mail the acknowledgment. Servicers must maintain evidence of the date of receipt of the borrower’s Initial Package in its records. …

Following underwriting and a determination that the borrower qualifies for a HAMP trial modification, servicers will place qualified borrowers in a trial period plan by preparing and sending a Trial Period Plan Notice to the borrower describing the terms of the trial modification and the payment due dates. Borrowers who make all trial period payments timely and who satisfy all other trial period requirements will be offered a permanent HAMP modification.”

16 Feb 2010. US Treasury press release.

http://www.financialstability.gov/docs/press/January%20Report%20FINAL%2002%2016%2010.pdf

“Making Home Affordable Program: Servicer Performance Report Through January 2010”

[Note that numbers reported earlier have been revised]

[This last graph, and a strong emphasis on 60+ day delinquencies, are new in this report.]

undated; accessed 20 Feb 2010. Making Home Affordable web site.

http://makinghomeaffordable.gov/modification_eligibility.html

12 Mar 2010. Making Home Affordable website.

http://www.makinghomeaffordable.gov/docs/Feb%20Report%20031210.pdf

“Making Home Affordable Program Servicer Performance Report Through February 2010”

“of the 6.0 million borrowers who are currently 60 days delinquent, 1.8 million borrowers are eligible for HAMP.”

[Redoing the success rate calculation.

• 6.0 million mortgages 60+ days delinquent
• Of these, 1.8 million qualify; assume all of these eventually in trial
• Trial to perm success rate: of 822,075 trials started by Nov, 170,207 permanents started by Feb; conversion rate 21%
• Apply 21% conversion rate to 1.8 m qualified = 378,000
• Apply 44% non-re-default rate = 166,320; = 3%

]

26 Mar 2010. Treasury announcement.

http://makinghomeaffordable.gov/docs/HAMP%20Improvements_Fact_%20Sheet_032510%20FINAL2.pdf

“Making Home Affordable Program Enhancements to Offer More Help for Homeowners”

“HAMP pay-for-success incentives will be expanded to include borrowers with FHA loans. …

Temporary Assistance for Unemployed Homeowners While They Search for Re-Employment

• Mortgage payments reduced to an affordable level for a minimum of 3 months, and up to six months for some borrowers, while eligible homeowner looks for new job.
  • Payment set at 31 percent of monthly income or less while homeowner is unemployed via forbearance plan.

Requirement to Consider Alternative Principal Write-down Approach and Increased Principal Write-down Incentives

• Requirement for all servicers to consider an alternative modification approach including more principal write- down for HAMP-eligible borrowers that owe more than 115 percent of the current value of their home. …
  • If NPV is higher under alternative approach, servicer will have option to use it.
• Alternative principal reduction allows some underwater homeowners to reduce principal balance of their mortgage in steps over three years, if they remain current on payments. …
  • Additional guidance will address the treatment of second liens where applicable, which must also agree to first extinguish principal in conjunction with any principal reduction on the first lien.
• For borrowers who have already received a permanent modification, or who are in a trial modification, and are still current on payments at the time the alternative modification approach is operational (later in 2010), servicers will be required to retroactively consider extinguishing an amount of principal balance in the same amount that would have been forgiven under the new alternative approach.
  • To further encourage principal write-downs, Treasury is also increasing the incentives that it provides for loans extinguished or partially extinguished in conjunction with the HAMP Second Lien Program. … [ranging from 6 cents to 21 cents on the dollar] …

Improvements to Reach More Borrowers with HAMP Modifications

• Improve borrower solicitation and communication and expand opportunities for borrowers in bankruptcy …
  • Prohibits referral to foreclosure until a borrower isevaluated and found ineligible for HAMP …
• Increase incentives for servicers to provide permanent modifications to homeowners …
• Implement FHA-HAMP, expansion of HAMP to include homeowners with FHA loans. …

Helping Homeowners Move to More Affordable Housing

• Increase incentives to provide more homeowners with foreclosure alternatives
  • Increase payoffs to subordinate lienholders who agree to release borrowers from debt to facilitate greater use of foreclosure alternatives including short sales or deeds-in-lieu.
    • The new payoff schedule allows servicers to increase the maximum payoff to subordinate lien holders to 6 percent of the outstanding loan balance and doubles from $1,000 to $2,000 the incentive reimbursement that is available to investors for subordinate lien payoffs, subject to an overall cap of $6,000.
  • Increase servicer incentive payments from $1,000 to $1,500 to increase use of foreclosure alternatives and encourage additional outreach to homeowners unable to complete a modification.
• Double relocation assistance payment for borrowers successfully completing foreclosure alternative to $3,000”

26 Mar 2010. Treasury release.

https://www.hmpadmin.com/portal/docs/second_lien/sd0905r.pdf

“Supplemental Directive 09-05 Revised: Update to the Second Lien Modification Program (2MP)”

“No later than 120 calendar days after the later of (i) the effective date of the 2MP SPA Service Schedule, (ii) the date a servicer receives the first and second lien matching information from LPS or (iii) the date of the implementation of the 2MP reporting and payment processes (each, a Trigger Event), a servicer must offer a 2MP trial period plan or 2MP modification, as applicable to any eligible second lien borrower whose corresponding first lien was modified under HAMP at any time prior to the Trigger Event and the first lien modification remains in good standing.”

15 Apr 2010. Treasury website.

http://www.financialstability.gov/docs/Mar%20MHA%20Public%20041410%20TO%20CLEAR.PDF

“Making Home Affordable Program Servicer Performance Report Through March 2010”

“of the 6.0 million borrowers who were 60 days delinquent in the 4th quarter of 2009, 1.7 million borrowers are eligible for HAMP.”

[Back-end debt-to-income ratio (ratio of total monthly debt payments to monthly gross income): Median before modification, 77.5%; after 61.3%.]

[Updating the success rate calculation.

• 6.0 million mortgages 60+ days delinquent
• Of these, 1.7 million qualify; assume all of these eventually in trial
• Trial to perm success rate: of 939,949 trials started by Dec, 230,801 permanents started by Mar; conversion rate 25%
• Apply 25% conversion rate to 1.7 m qualified = 425,000
• Apply 44% non-re-default rate = 187,000; = 3%

]

11 May 2010. Treasury supplemental directive 10-04.

https://www.hmpadmin.com/portal/docs/hamp_servicer/sd1004.pdf

“Home Affordable Unemployment Program”

“A borrower who is currently in a HAMP trial period plan and becomes unemployed may seek consideration under UP if the borrower was not seriously delinquent (as defined above) as of the first payment due date of the HAMP trial period plan. …

During the UP forbearance plan, the borrower’s monthly mortgage payment must be reduced to an amount that is no more than 31 percent of the borrower’s gross monthly household income. In determining gross monthly income, the servicer may rely on stated income provided by the borrower or may require documentation of income. At the discretion of the servicer, the borrower’s monthly mortgage payments may be suspended in full.”

17 May 2010. Treasury website.

http://financialstability.gov/docs/April%20MHA%20Public%20051710%20FINAL.pdf

“Making Home Affordable Program Servicer Performance Report Through April 2010”

“Servicers who started trials with verified documents generally posted higher conversion rates than servicers who allowed borrowers to enter trials with stated income. With recent Treasury guidance, all servicers are now verifying borrower documents before trial start.

Using stated income upon trial starts, the four largest participating servicers have conversion rates below 30%.”

“Back-End Debt-to-Income Ratio” (BEDTIR) is the “Ratio of total monthly debt payments (including mortgage principal and interest, taxes, insurance, homeowners association and/or condo fees, plus payments on installment debts, junior liens, alimony, car lease payments and investment property payments) to monthly gross income.” The median BEDTIR for HAMP participants fell from 80% before modification to 64% after.

21 Jun 2010. Treasury website.

http://financialstability.gov/docs/May%20MHA%20Public%20062110.pdf

“Making Home Affordable Program Servicer Performance Report Through May 2010”

”

• Common causes of cancellations include borrowers who had mortgage payments already less than 31% of their income, missed trial payments or had incomplete or unverifiable documentation …
• According to servicer data, nearly half of homeowners unable to enter a HAMP permanent modification enter an alternative modification with their servicer.
• Fewer than 10% of canceled trials move to foreclosure sale, servicers report.”

20 Jul 2010. Treasury website.

http://financialstability.gov/docs/June%20MHA%20Public%20FINAL%20072010.pdf

“Making Home Affordable Program Servicer Performance Report Through June 2010”

“Servicers Continue to Work Through Aged Trial Population

• Cancellations continue to rise as servicers comply with Treasury guidance to make decisions on aged trials. Of the newly canceled trials this month, more than 60% had been in trial six months or longer.
• Servicers are still completing their reviews of nearly 166,000 active trials lasting six months or more.
• Approximately 45% of homeowners in canceled trials entered an alternative modification, based on survey data from the eight largest HAMP participants. Fewer than 2% of homeowners in canceled trials went to foreclosure sale.
• The most common causes of cancellations include incomplete documentation, missed trial payments, or mortgage payments already less than 31% of the homeowner’s income.

New This Month: Performance of Permanent Modifications

• For permanent modifications at six months, fewer than 6% are 60+ days delinquent.
• For permanent modifications, the default rate – loans 90+ days delinquent – is fewer than 2% at the time they are six months old.
• Fewer than 3% of homeowners in permanent modifications at nine months have defaulted on their HAMP modification.
• For homeowners in permanent modifications at nine months, fewer than 8% are 60 days past due. …

Select Median Characteristics of Permanent Modifications … Back-End Debt-to-Income Ratio … after modification … 63.7% …

Homeowners Whose HAMP Trial Modification Was Canceled in the Process of … short sale 2.4% … foreclosure starts 8.9% … foreclosure completions 1.3%”.”

21 Jul 2010. BarCap report via FT Alphaville.

http://ftalphaville.ft.com/blog/2010/07/21/293876/barcap-vs-hud-on-hamp/

“BarCap vs HUD on HAMP. Stacy-Marie Ishmael”

“In a report headlined “Misleading Reporting of Mod Performance in the June HAMP Scorecard”, analysts Sandeep Bordia and Jasraj Vaidya deplored the reporting of the latest HAMP loan performance data by the US Department of Housing and Urban Development. …

Here’s their take on the table (emphasis in the original):

Figure 1 shows loans that are 60+ /90+ days delinquent at the end of 3,6,9 months by quarter of modification. However, in the report, a footnote to the table states that “a HAMP permanent modification is canceled for non payment if it is more than 90 days delinquent”. We interpret this to mean that these loans are removed from the percentage delinquent numbers reported in this table. The report also tells us that 8,628 loans have been cancelled from the permanent HAMP modification stage till date (8823 permanent mods cancelled – 195 paid off). From Figure 1, we can approximate the number of 60+ borrowers today as (Q110 60+ at 3 months) + (Q409 60+ at 6 months) + (Q309 60+ at 9 months). Similarly, we can estimate the 90+ loans as of the latest date. These numbers turn out to be 8,205 60+ loans and 2,489 90+ loans. We believe that the total number of loans that have gone bad after the permanent mod stage is probably closer to the 60+ loans estimated above, plus the cancelled permanent modifications, which more than doubles the absolute number from 8,205 to 16,833 bad loans. The report does not contain enough information to allow us to calculate true redefault rates by quarter of modification, but we would expect them to exceed the level reported in Figure 1. …

Given the nature of reporting available for most HAMP mods in Loan Performance, where only permanent mods are reported, we find that a more consistent approach is to use mod rates based on permanent mods and redefaults from permanent mods. On that definition, we believe that our base case expectation of about 60% lifetime redefaults on HAMP are still adequate.

”

20 Aug 2010. Treasury website.

http://financialstability.gov/docs/JulyMHAPublic2010.pdf

“Making Home Affordable Program: Servicer Performance Report Through July 2010”

22 Sep 2010. Treasury website.

http://financialstability.gov/latest/reportsanddocs.html

“Making Home Affordable Program Servicer Performance Report Through August 2010”

25 Oct 2010. Treasury website.

http://financialstability.gov/latest/reportsanddocs.html

25 October 2010. SIGTARP.

http://www.sigtarp.gov/reports/congress/2010/October2010_Quarterly_Report_to_Congress.pdf

“Quarterly Report to Congress October 26, 2010”

As recently as October 5, 2010, in the Retrospective, Treasury asserted no fewer than three times that “[e]ighteen months into the program, HAMP has helped more than 1.3 million homeowners by reducing their monthly mortgage payments to more affordable levels.” Furthermore, Treasury makes the remarkable argument that every single one of these modifications is a success, including the nearly 700,000 that have failed and more than 173,000 that remain in limbo, claiming that “every single person who is in a temporary modification is getting a significant benefit” from temporarily reduced payments. Put another way, in the absence of benchmarks for HAMP’s original goal, to “help up to 3 to 4 million at-risk homeowners avoid foreclosure . . . by reducing monthly payments to sustainable levels,” Treasury is reduced to now trying to define every single one of the nearly 700,000 HAMP trial modification failures as “successes.”

Treasury’s decision to declare such uniform success for so many failures disregards the harm and suffering that often accompany failed trial modifications. In Section 3: “The Economics of Loan Servicing,” SIGTARP has provided some examples of the harms that failed modifications have inflicted, including complaints received through SIGTARP’s Hotline. There have been many published reports of similar and more extreme examples, such as news website ProPublica’s recent survey of HAMP participants. They all paint a similar portrait of many HAMP borrowers, often already contending with other hardships, who end up unnecessarily depleting their dwindling savings in an ultimately futile effort to obtain the sustainable relief promised by the program guidelines. Others, who may have somehow found ways to continue to make their mortgage payments, have been drawn into failed trial modifications that have left them with more principal outstanding on their loans, less home equity (or a position further “underwater”), and worse credit scores. Perhaps worst of all, even in circumstances where they never missed a payment, they may face back payments, penalties, and even late fees that suddenly become due on their “modified” mortgages and that they are unable to pay, thus resulting in the very loss of their homes that HAMP is meant to prevent.

While it may be true that many homeowners may benefit from temporarily reduced payments even though the modification ultimately fails, Treasury’s claim that “every single person” who participates in HAMP gets “a significant benefit” is either hopelessly out of touch with the real harm that has been inflicted on many families or a cynical attempt to define failure as success. Worse, Treasury’s apparent belief that all failed trial modifications are successes may preclude it from seeking to make the meaningful changes necessary to provide the “sustainable” mortgage relief for struggling families it first promised. What Treasury deems a universal benefit, many homeowners, members of Congress, and a growing number of commentators describe as “cruel” and offering little more than “false hope.”

To combat the risk of growing mistrust that accompanies each Treasury announcement on HAMP, and in the spirit of full transparency, Treasury should acknowledge the program’s failings and finally publish meaningful goals, no matter how modest they may now appear to be when compared to the original program announcements. …

As of September 30, 2010, approximately $1.6 million in TARP funds had been paid to investors, borrowers, and servicers in connection with 342 short sales or deeds-in-lieu completed under HAFA ….

As of September 30, 2010, approximately $10,500 in TARP funds had been paid to servicers in connection with 21 modifications under 2MP. …

Principal forbearance and principal forgiveness, however, lower the interest-bearing principal balance and therefore reduce the servicer’s monthly fee.”

19 Nov 2010. Treasury.

http://financialstability.gov/latest/reportsanddocs.html

“18 servicers have signed up for the Second-Lien Modification Program (2MP), covering nearly two-thirds of the second-lien mortgage market.”

22 Dec 2010. Treasury.

http://financialstability.gov/latest/reportsanddocs.html

31 Jan 2011. Treasury (see Sources above)

6 Mar 2011. Treasury (See Sources above)