Not everyone I’ve heard from who moved through the HAMP program has failed to secure a lower mortgage rate. Indeed, Treasury Department statistics show that 434,000 borrowers have received permanent modifications, with 421,000 of those still active. However, as the chart at the link shows, this is a fraction of those who are eligible for the program, and nowhere near the 3-4 million borrowers Treasury said they would help when they announced the program in March of 2009. 1.3 million people have started trials, and 616,000 have been kicked out of the program. Most economic experts see these numbers as disappointing.
But a few have been helped. One person (who requested anonymity) told me that he just signed his final papers this week, “after being in the program since July 2009, through two servicers.” This near-endless stringing out of the process is one of the recurring features of the program, for a variety of reasons.
One is the complexity of the paperwork, in part due to Treasury guidelines for determining qualification, as well as on-the-fly changes that they’ve made to the program, which servicers struggle to account for. But the larger reason seems to be a deliberate strategy by banks to delay foreclosures and keep the loans on their books. As Zach Carter explained, banks would have to take losses on the home right away in the event of a foreclosure. Also, in some cases banks can use accounting methods to claim “phantom income” on monthly payments that borrowers do not make. Apparently, banks are claiming massive values on second liens which simply don’t exist.
This accounts for the backlog of actual foreclosures, despite in some cases extreme delinquencies. The average time from delinquency to foreclosure is now over a year. It makes sense for the servicers to delay, delay, delay, ask for more forms, pretend to lose forms, ask for updates to forms, and basically put people through hell (“hell” is a recurrent word in the missives I’m receiving) before they learn their fate.
(UPDATE: See Marcy’s excellent post on the blatant foot-dragging on defaults from the banks, and how this could ultimately hurt them big in the future.)
In the case of my unnamed success story, he got his loan restructured as a 40-year note, with a 2% interest rate for the first five years, then stepping up gradually until it caps out at 4.5%. There is no principal change to the loan, and a balloon payment toward the end of the term. “My loan payments were reduced by a little more than $1,200 a month (close to 30% of the original amount) for the first five years,” he said. Compared to his original loan, an interest-only mortgage which would have adjusted next year, this is much more favorable, and refinancing was not an option given the lack of equity in the home.
My success story pointed to the servicer as the key to the entire program. He ought to know, he had two of them, with his mortgage sold in between. “My first servicer was absolutely clueless, and they started me off on the whole process. My second servicer really had its act together, and things really moved along.” Some servicers aren’t even participating in HAMP. And all of them have the discretion to move the program along as fast or as slow as they wish. If it makes financial sense for them to do a workout, in some cases they do, and they collect government money as an incentive. If it doesn’t, and the government money doesn’t help the process, they just won’t – and they’ll string along the borrower or add trial payments to squeeze out some more money before initiating foreclosure.
“You can’t pick your servicer– that’s sort of like picking your parents– you have what you have,” said the successful HAMP recipient.
The design problems, the clear violations on the part of the servicers without recourse from Treasury, and the total discretion on the servicers to pick and choose who to help make this a bad deal – especially when, if you don’t get a permanent modification, you end up in substantially worse financial shape. We don’t have to live with these problems – Treasury has the ability to fix it. So far, they haven’t, not to any major degree. Paul Krugman today called for a revamp of the “deeply unsuccessful” program.
Mike Konczal has some great related thoughts on the program here.