Late in April, I went on Fox Business TV news to discuss the Home Affordable Modification Program with Gerri Willis. About halfway through the interview, Gerri asked me if I felt “government should get out of housing?”
It’s an interesting fantasy, a projection that plays well with Fox Business viewers and HousingWire readers alike. The interesting thing is that it would be difficult to consider HAMP a success.
The Treasury Department launched HAMP in March 2009 to provide mortgage servicers an incentive to modify mortgages on the verge of foreclosure. The Obama administration set an early goal of reaching between 3 and 4 million homeowners with the program, but through December 2010, servicers had started 579,659 permanent modifications and offered roughly 1.7 million three-month trials.
The Treasury originally set aside roughly $46 billion in Troubled Asset Relief Program funds for HAMP, but, according to the Congressional Budget Office, it has spent only $12 billion in payouts to servicers and homeowners.
As of March 31, 2013, the Treasury had spent less than 2% (approximately $7.3 billion out of the TARP total of $475 billion) on homeowner relief programs, including HAMP and the Hardest Hit Fund, compared with the 75% of TARP funds the Treasury spent to rescue financial institutions.
According to the Office of the Special Inspector General for TARP, PNC Financial Services Group, a large regional East Coast bank, alone received $7.6 billion, nearly the same amount of TARP funds used to help struggling homeowners throughout the nation. SunTrust Banks, a large southeastern regional bank, received $4.85 billion, just slightly less than the $5 billion spent on TARP’s signature housing program HAMP.
“The six largest banks each received much more,” SIGTARP said. “Treasury pulled out all the stops for the largest financial institutions, and it must do the same for homeowners.”
The inspector general provided updated HAMP numbers in April, adding that the only way a homeowner can help avoid foreclosure is to stay active on a permanent modification for the remaining life of the loan. Well, that sounds obvious, but it’s worth mentioning. Taking the logic further, HAMP and sister program, the Home Affordable Refinance Program, are precursors to more government intervention.
Bearing in mind there are also a slate of other rescue measures — the Hardest Hit Fund, settlement from the national attorneys general, unemployment benefits — after a homeowner falls out of HAMP or HARP, they are meant to be processed through the Home Affordable Foreclosure Alternatives program.
HAFA provides a short sale to the homeowner. The title is cleared of liens, and up to $3,000 in relocation assistance may be provided.
Here’s the thing, though: This entire process isn’t working and it’s really all HAMP’s fault.
Here are the latest SIGTARP numbers: 862,279 homeowners are in an active permanent HAMP modification, about half of which were funded through TARP. As of March 31, 2013, more than 312,000 homeowners have redefaulted on their HAMP permanent modification.
“For these homeowners, the HAMP permanent mortgage modification they received was not sustainable,” SIGTARP opines. And so these homeowners, instead of being shifted to HAFA, go where? Back into the HAMP blender.
Mortgage servicers are just modifying and remodifying these homeowners, and are more than happy to do so, because they are financially incentivized to do so. Fair enough.
But there is a much bigger picture being ignored. And six minutes on Fox Business isn’t going to get there. So, let’s go there now.
HAMP redefaults damage housing in that the government continues to push a program that is clearly not working. HAMP merely kicks the can down the road and does not address the core economic reality — ownership of an asset needs to be in the hands of someone who not only wants it, but can handle it.
In the private sector, by way of comparison, if you were successful at your job only half of the time, would you get to keep it? Thankfully, the Treasury is looking to shutter this program by the end of this year. But considering the populism circulating in the federal government, the chances of an extension are not unfounded.
And extending the HAMP timelines is clearly not working either. According to SIGTARP, the Treasury’s data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program.
As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarters of 2009, are redefaulting at a rate of 46.1% and 39.1%, respectively. HAMP permanent modifications from 2010 also had high redefault rates, ranging from 28.9% to 37.6%.
“Treasury must address why homeowners are falling out of the HAMP program,” SIGTARP said.
“Exactly why these HAMP permanent modifications failed is not well understood by Treasury.”
But this isn’t going to stop the Treasury from working principal writedowns into the equation. But that is another column altogether.
So how high can these redefaults go? Back in 2010, HousingWire reported that Fitch predicts redefaults on 65-75% of modified subprime and Alt-A loans and 55-65% of modified prime loans within 12 months of modification.
When our reporters asked Shaun Donovan, secretary of the Department of Housing and Urban Development about these redefaults, he said he expected the number would be “significantly lower” than what market commentators had predicted.
Speaking in August 2010 at the National Association of Real Estate Brokers convention in Fort Worth, Texas, Donovan said that HAMP and other programs from lenders and the Federal Housing Administration had modified 2.8 million mortgages. What Donovan didn’t know, or couldn’t say, was that most of these modifications were destined for failure. At the time, he took the former approach.
“I think it’s pretty clear that folks were expecting 60% redefault rates, and I think it’s clear that it will be substantially lower than that,” Donovan said at the time. And yet he seemed to believe that HAMP was flawed, and defended its existence: “Now, the program wasn’t perfect — partly because we wanted to get it up and running as quickly as possible.”
So now we have the data — the power — to make observations on programs that desperately need modification themselves. We know that remodified mortgages default at higher rates than modifications that stick the first time.
Of course, keeping homeowners in the HAMP blender does keep them in their homes. Eventually, this will need to be addressed, probably in the most passive-aggressive way possible. In a time of growing housing demand, there is no rush to get more homes on the market, which would be the result of moving HAMP fails to HAFA.
So here we see how a populist program actually damages the population at large. By keeping HAMP homeowners in their properties, house prices remain strong due to lack of supply. The nation desperately needs millions of homes to sell. And here they are.
But, instead, the government will continue to dish taxpayer money at the expense of hard-working Americans looking for their own property.
SIGTARP recommended that the Treasury conduct research and analysis to understand better and attack the underlying root causes of homeowner redefaults on HAMP-modified mortgages.
Already, the Treasury has gathered a significant amount of data from servicers on the redefaulting loans modified in HAMP that it should analyze, including the characteristics of HAMP modifications that are more likely to redefault.
“To reduce redefaults and better assist struggling homeowners, Treasury should work with those servicers who already have reporting requirements to Treasury, to learn additional information about the causes or characteristics of redefaulted HAMP modifications,” the SIGTARP report concludes.
SIGTARP recommended that the Treasury work with servicers to develop an early warning system to identify the risks of future redefaults before they happen, and intervene.
So are servicers then able to ascertain the root cause of redefaults? Is it fair to call HAMP a failure without comparing it to something, anything else?
Before the Fox interview, I tried to contact Brad Dwin, the press contact for HOPE NOW, the industry-created alliance of mortgage servicers, investors, counselors and other mortgage market participants, brought together by the Financial Services Roundtable, Housing Policy Council and Mortgage Bankers Association.
HOPE NOW is the private market version of HAMP. And it claims to be much more efficient in terms of volume. Eric Selk, HOPE NOW executive director, recently issued a statement in which he said: “HOPE NOW has been tracking data on mortgage solutions since 2007 and our mortgage servicing members have now offered 7.4 million permanent, non-foreclosure solutions to homeowners.”
More than 158,000 loan modifications have been completed in the first two months of 2013, and outreach to at-risk homeowners by the industry, nonprofits, government agencies and others remains proactive.
“These results are a testament to the hard work being done on behalf of the nation’s homeowners. There are more options than ever before and the goal is to offer viable, realistic and sustainable solutions,” Selk added.
And to show how well the program is working, HOPE NOW illogically posts delinquency info in its press releases.
HOPE NOW claims in the same time period, delinquencies of 60 days or more were at 2.48 million for the month of February, compared to 2.54 million in January — a slight decline of approximately 2%.
But this delinquency data is extrapolated from data received by the Mortgage Bankers Association for the fourth quarter of 2012. This is 60 days delinquent as a percentage of total loans.
In order to get further clarity, I asked Brad to provide the redefault rates for HOPE NOW mods.
He ignored me.
So we are left with no choice but to compare HAMP to itself and assume HOPE NOW is doing no better, if not worse. And we can safely assume HAMP is a failure — when compared to HAMP.
